INVESTING

This page sets out the principles of personal investing in Canada and the legal and tax characteristics of the investment accounts available to individuals. Each registered account is examined in detail on its own subpage: the Tax-Free Savings Account (TFSA), the Registered Retirement Savings Plan (RRSP), the First Home Savings Account (FHSA), the Registered Education Savings Plan (RESP) and Registered Disability Savings Plan (RDSP), and non-registered accounts. The content is educational in nature and does not constitute investment advice.

REGISTERED AND NON-REGISTERED ACCOUNTS

A registered account is a plan or arrangement registered with the Canada Revenue Agency (CRA) under the Income Tax Act, which confers a tax advantage on contributions, investment income, or withdrawals, subject to contribution limits and conditions of use. A registered account is not itself an investment; it is a legal wrapper within which qualified investments are held. A non-registered account offers no tax advantage, and income and gains are taxed annually as earned or realised.

COMPARISON OF PRINCIPAL ACCOUNTS (2026)

• TFSA: contributions are not deductible; investment income and withdrawals are tax-free; annual limit of $7,000, with unused room carried forward and withdrawals restored to room on January 1 of the following year; cumulative room of $109,000 for an individual aged 18 or older and resident in Canada since 2009.

• RRSP: contributions are deductible; investment income is tax-deferred; withdrawals are fully taxable; deduction limit equal to 18% of the previous year's earned income to a maximum of $33,810 for 2026, less the pension adjustment, plus unused room carried forward; the plan must be converted or collapsed by the end of the year the annuitant turns 71.

• FHSA: contributions are deductible and qualifying withdrawals for the purchase of a first home are tax-free; $8,000 annual limit and $40,000 lifetime limit, with up to $8,000 of unused annual room carried forward; maximum participation period of 15 years.

• RESP: contributions are not deductible; investment income and government grants are tax-deferred and taxed in the hands of the student on withdrawal; lifetime contribution limit of $50,000 per beneficiary; Canada Education Savings Grant of 20% on the first $2,500 contributed annually.

• RDSP: contributions are not deductible; investment income, grants, and bonds are taxable to the beneficiary on withdrawal; lifetime contribution limit of $200,000; available to beneficiaries eligible for the disability tax credit.

• Non-registered account: no contribution limit; interest is fully taxable, Canadian dividends are eligible for the dividend tax credit, and one-half of realised capital gains is taxable.

CATEGORIES OF INVESTMENT

• Cash and cash equivalents: high-interest savings accounts, money market funds, and treasury bills. These offer liquidity and capital preservation with low expected return.

• Guaranteed Investment Certificates (GICs): fixed-term deposits issued by banks and trust companies. Eligible deposits are protected by the Canada Deposit Insurance Corporation up to $100,000 per insured category per member institution.

• Fixed income: government and corporate bonds, which pay periodic interest and return principal at maturity. Bond prices move inversely to interest rates.

• Equities: shares representing ownership of a corporation, providing returns through dividends and capital appreciation, with higher volatility.

• Investment funds: mutual funds and exchange-traded funds (ETFs), which pool capital across many securities. Costs are expressed through the management expense ratio (MER).

• Other assets: real estate investment trusts, segregated funds, and alternative investments.

PRINCIPLES OF INVESTING

• Risk and return: higher expected returns are associated with greater volatility and probability of loss.

• Time horizon: the period until funds are required determines the capacity to bear short-term fluctuations.

• Diversification: holding assets across asset classes, sectors, and geographies reduces unsystematic risk.

• Asset allocation: the proportion of a portfolio held in each asset class is the principal determinant of long-term risk and return.

• Compounding: reinvested earnings generate further earnings, so the length of the investment period strongly influences the final value.

• Costs: management fees, trading commissions, and advisory fees reduce net returns and compound over time.

• Liquidity: the ease and speed with which an investment can be converted to cash without loss of value.

• Inflation: real return equals nominal return less inflation; holdings that do not keep pace with inflation lose purchasing power.

• Rebalancing: periodically restoring the portfolio to its target allocation.

• Know Your Client: registered dealers and advisers are required to assess a client's financial circumstances, investment knowledge, objectives, time horizon, and risk profile before recommending investments.

TAXATION OF INVESTMENT INCOME (NON-REGISTERED)

• Interest: fully included in income annually, including accrued interest on compound-interest investments.

• Eligible dividends from Canadian corporations: grossed up by 38% and eligible for a federal dividend tax credit of 15.0198% of the grossed-up amount, plus a provincial credit.

• Other-than-eligible dividends: grossed up by 15% and eligible for a federal dividend tax credit of 9.0301% of the grossed-up amount, plus a provincial credit.

• Capital gains: one-half of the gain (proceeds less adjusted cost base and selling costs) is included in income when realised.

• Foreign income: fully taxable, with a foreign tax credit for withholding tax paid. Foreign dividends are not eligible for the dividend tax credit.

• Return of capital: not taxable when received, but it reduces the adjusted cost base.

REGULATORY PROTECTION

• Canadian Investment Regulatory Organization (CIRO): the national self-regulatory organization overseeing investment dealers and mutual fund dealers.

• Canadian Investor Protection Fund (CIPF): protects client property held by a member firm in the event of the firm's insolvency, within prescribed limits. It does not protect against market losses.

• Canada Deposit Insurance Corporation (CDIC): protects eligible deposits at member institutions.

• Provincial securities commissions, such as the Ontario Securities Commission, regulate securities markets and registrants in each jurisdiction.