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Tax Planning

When you are fully set up and doing your own investing, you probably have at least 3 or 4 accounts to contend with: TFSA, RRSP, Non-Registered and RESP.  So quite often the question becomes "in what account should I place XXX?".   Your investments cause you to incur taxes whenever you receive a dividend or sell a stock and the amount of tax (if any) depend on the following three main factors:
  1. Where your investment is held (RRSP, TFSA, Non-Registered etc)
  2. Where the investment is listed (Canada or US)
  3. Type of income (capital gain, dividend, return of capital, etc) 
I'm quite positive there are other factors but these are the main ones.

Now, there are countless articles and postings on the web that aim to help steer you in the right direction and I've added some links to them below.  It can be quite confusing because in many cases I find the answer to 'in which account should I buy this stock' varies depending on where you (and your stock) are now vs. where you expect things to be 10, 20, 30 years down the road. 

What's more, I find most of the articles written on tax efficiency tend to ignore the fact that dollars placed into an RRSP result typically in a refund that typically leads to more dollars invested overall.

As a result of this, for myself I believe RRSPs should be maximized before looking to the other accounts.  Only when you know you are going to max out your RRSPs should you really start to be concerned about which account to use.

So I won't go so far as to suggest which account to use for your stocks, but I will provide this handy table so at least you know what to expect. Please note - this table is a handy reference that I personally use but double check the info on your own...I can't guarantee I have made no mistakes!

 Action     TFSA             RRSP/RRIF Non-Registered RESP
 Cash put into Account no refund provided refund provided into your bank account no refund provided Government grant deposited into RESP account
 Purchase of Investments                         no tax no tax no tax  no tax
 Canadian Dividends paid into account no tax no tax dividend tax credit no tax
 Canadian Capital Gains - when sold not taxed (it is still sheltered) not taxed (it is still sheltered) tax is 50% of capital gain     not taxed (it is still sheltered)
 "Return of Capital" - when deposited not taxed (it is still sheltered) not taxed (it is still sheltered) not taxed (but original cost base decreased, resulting in eventual higher gains when sold) not taxed (it is still sheltered)
 US Dividends paid into account witholding tax (15%) deducted - not recoverable no withholding tax - entire amount deposited- withholding tax (15%) deducted - may be recoverable
- no dividend tax credit
- net effect: treated same as interest income		 withholding tax (15%) deducted - not recoverable
 Foreign (ADR) Dividends paid into account witholding tax % depends on tax treaty for countrywitholding tax % depends on tax treaty for country witholding tax % depends on tax treaty for country witholding tax % depends on tax treaty for country 
 US & Foreign Capital Gains - when soldnot taxed (it is still sheltered) not taxed (it is still sheltered)  tax is 50% of capital gainnot taxed (it is still sheltered) 
 Cash out of Account no tax on withdrawal 100% of amount withdrawn taxed as incomeno tax on withdrawal - original contribution amount not taxed
- accumulated income taxed as income at hands of student

Further Related Links and Articles

Seek shelter for your U.S. dividend stocks - The Globe and Mail - John Heinzl
TFSA & Non-Resident Withholding Taxes - Canadian Tax Resource Blog