What Is A Non-Registered Investment? Canadians Guide

Are you unsure about different types of investments? This is what a non-registered investment is.
What is a non-registered investment
Article Overview

Financing your life can feel complicated and confusing, especially when you’re just getting started. You may be wondering what all these different investment options are and which one is right for you. For instance, what is a non-registered investment?

This may seem like a simple question, but it can be tough to answer without getting into complicated financial jargon. In this blog post, we will break it all down for you and explain everything you need to know about non-registered investments.

Investing is a large part of your financial success, take to the time to let our other articles guide you to financial happiness.

So, whether you’re looking for new ways to grow your portfolio or are just starting to think about your financial future, read on to learn more about how non-registered investments could work for you.

What is a non-registered investment?

A non-registered investment also referred to as an open or non-registered plan, is an investment account where you can invest an unlimited amount of money in a wide range of assets.

Banks, financial service providers, and mutual fund companies offer non-registered investment accounts. Both individuals or spouses can open non-registered investment accounts, investing in stocks, bonds, mutual funds, exchange-traded funds, and other products.

Non-registered accounts are not tax-sheltered, which means any income you earn on investments held in the account is subject to taxation. Investing in a non-registered account might result in interest or dividend income taxed when earned and capital gains taxed when realized.

Because non-registered investments are not registered with the federal government, they are flexible and have zero contribution limits. However, one downside to non-registered investments is that they are not tax-deductible.

There are two kinds of non-registered investment accounts: cash and margin. Cash accounts are taxable when capital gains, dividends, or interest income are earned in a fiscal year. A margin account allows customers to borrow money from their broker to buy securities, known as purchasing on margin.

What does registered investment mean?

A registered investment is a type of investment account registered with the federal government. Registered investments are tax-sheltered (tax-deferred) by the government, so income earned on the account is never subject to taxation until withdrawals are made.

However, there are rules for investors to follow to avoid being penalized. This is to make sure investors use registered investment accounts for their intended purposes.

The most common types of registered investment accounts are Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts(TFSAs).

Other types of registered investment accounts include:

  • Registered Education Savings Plan(RESP)
  • Registered Disability Savings Plan(RDSP)
  • Registered Retirement Income Funds(RRIF)

‍Registered investment accounts have contribution limits and withdrawal rules that you must follow. For instance, if you withdraw funds from an RRSP before retiring, you will be subject to taxes on the withdrawal. However, you can deduct your contributions from your taxable income with RRSPs.

There are many benefits to both registered and non-registered investment accounts. Registered investments are held within specific accounts which offer certain tax breaks. Non-registered investments don’t have this benefit, though they are more flexible. It’s always helpful to speak with a financial advisor to determine which type of investment account is right for your financial plan.

Is a TFSA a registered investment?

Yes, a Tax-Free Savings Account (TFSA) is a registered investment account. With a TFSA, your investment earnings are not taxed.

TFSAs offer many benefits to Canadians, including the ability to withdraw your money without paying taxes. If you’re looking for a flexible and tax-advantaged investment account, a TFSA may be right.

Speak with a financial advisor for more information on TFSAs and other registered investment accounts. If you’re interested in these, they can help you determine which type of account is right for your unique situation.

Are non-registered investments worth it?

Non-registered investments offer many benefits, including flexibility and zero contribution limits. If you reach your contribution limit on an RRSP or TFSA and need another way to save money, opening a non-registered account may be worthwhile.

In either case, non-registered investments can be a great way to grow your wealth. In addition to having zero contribution limits, there are no withdrawal limits, meaning you can withdraw as much as you want or need without penalties.

If you’re considering investing in a non-registered account, speak with a financial advisor to learn more about the pros and cons. They can help you decide if a non-registered investment is right for you.

What's the difference between registered and non-registered investments?

The main difference between a registered and non-registered investment account is that the former has tax benefits, while all earnings are taxed and claimed as investment income with the latter.

With registered investments, earnings are not taxed while the money is invested, yielding a higher earning potential. However, there are contribution limits with registered investments, unlike non-registered ones.

Overall, non-registered investments offer many benefits and flexibility, and there are no age restrictions. Alternatively, there is a minimum or maximum age limit for most registered plans.

Registered accounts are less flexible overall. Most registered accounts have age limits when you start contributing or withdrawing funds. For example, you must be over 18 to open TFSAs, and RRSPs must be collapsed by age 71. Additionally, some long-term savings accounts are also challenging and costly to withdraw from.

All in all, registered investment accounts are ideal for long-term savings goals like retirement or a child’s tuition. Meanwhile, anon-registered account can be great for shorter or longer-term financial investing.

With non-registered accounts, there is no limit on how much you can contribute, and you have the flexibility to withdraw your money as you need. While non-registered investments are taxed annually, dividends and capital gains are taxed more favourably than interest income.

What is a Non-Registered Investment: Bottom Line

So, what is a non-registered investment? It’s simply an investment that doesn’t have the same level of protection as a registered investment. Is that a bad thing? Not necessarily – it just depends on your financial situation and goals. And it also means you need to be a little more careful when investing in them.

Talk to a financial advisor about your questions regarding registered and non-registered investments. They can offer advice on what might be the best option for your unique financial situation. They can also help you keep track of your capital gains, and losses come tax time.

FAQ

The difference between registered and non-registered investments is that registered investments refer to investment accounts or plans that are recognized by the government and offer certain tax and estate benefits. Examples include RRSPs (Registered Retirement Savings Plans), TFSAs (Tax-Free Savings Accounts) and RESPs (Registered Education Savings Plans). Non-registered investments are accounts or plans that are not granted with the same tax and estate benefits by the government.

Some examples of non-registered investments are investments in Stocks, Bonds, Mutual Funds and ETFs. 

TFSA is NOT a non-registered investment. TFSA is a registered investment account that allows you to invest in various types of assets such as stocks, bonds, mutual funds and ETFs and the growth in the account is tax free.

The advantages of non-registered investments are that you may have more investment options to choose from compared to a registered investment account. Moreover, you can claim capital losses on the account to offset some taxes if you lose money.

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Written by:

Jim Pan, CFP, MFA-P

Jim is a dedicated, fee and advice only independent Certified Financial Planner with a focus on supporting healthcare business owners during their crucial growth phase. His expertise lies in offering comprehensive solutions to minimize taxes while embracing a holistic approach. With a career spanning back to 2010, Jim has established a strong presence in the financial industry. He proudly holds a range of designations, including Certified Financial Planner (CFP), and Master Financial Advisor - Philanthropy (MFA-P). He is currently pursuing additional designations and qualifications to better serve his clients and community. Beyond his qualifications, Jim is a member and an esteemed participant in the Million Dollar Round Table (MDRT), an exclusive global association comprising the top 1% of financial advisors. Jim's commitment extends to the community, where he spearheads numerous charitable fundraising events and plays an active role in enhancing the well-being of others. Additionally, he has contributed significantly by serving on the board of the Canadian Mental Health Association in Vancouver. Currently, he volunteers with Junior Achievement of British Columbia (JABC) to present personal finance topics to youths.

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