Registered Accounts

Although there are a number of registered accounts in Canada, we will focus on the two most popular ones: TFSAs and RRSPs

TFSA

"The Tax-Free Savings Account (TFSA) program began in 2009. It is a way for individuals who are 18 and older and who have a valid social insurance number to set money aside tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn. Administrative or other fees in relation to TFSA and any interest or money borrowed to contribute to a TFSA are not tax-deductible."

Note: You will keep receiving contribution room to your TFSA even if you do not file income taxes or open a TFSA

Keynotes:

• You can open as many TFSA accounts as you want as long as the dollar amount contributed adds up to be within your total limit. For example, you can have a TFSA account with three separate banks, several brokers but as long as the total contributed does not exceed your limit you will not be audited by the CRA.

• We suggest a TFSA as the first registered account to open once you are the age of majority within your province/ territory. We suggest maxing out the TFSA as much as possible with a majority weight of defensive passive income-generating stocks.

• In theory, you can make a million dollars with your TFSA and not be taxed for the gains but make sure that you do not use the account for business activities such as trading. The CRA does not specify exactly what "business activity" would look like and how many trades would mark your account as such. Regardless, make sure to only hold investments that you plan to hold for more than a year to prevent the CRA from conducting an audit on your TFSA.

• Make sure to read about the implications of withdrawals on the official CRA website before withdrawing from your TFSA

RRSP

"An RRSP is a retirement savings plan that you establish, that we register, and to which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax.

Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan; you generally have to pay tax when you receive payments from the plan."

Note: To earn RRSP contribution room, it completely depends on the amount of income that you report when you file your taxes.

Keynotes:

• Before opening an RRSP, employers often have partner programs or packages that can increase your RRSP contributions so be sure to check if your employer does RRSP contribution matching.

• Make sure to read about the implications of withdrawals on the official CRA website before withdrawing from your RRSP