Dale Jackson

Personal Finance Columnist, Payback Time

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Not all investments are taxed equally. And that’s why you can save tax dollars by giving income generating investments like bonds, GICs and high interest savings accounts first priority in a registered retirement savings plan or tax free savings account.

Any tax expert will tell you to never make an investment decision solely based on how it’s taxed – but what goes into or outside registered accounts like RRSPs and TFSAs can make a big difference.

First, it’s important to know how investment gains are taxed in RRSPs and TFSAs. In an RRSP all gains are fully taxed when they are withdrawn. The name of the game is to withdraw those funds when you are in a low tax bracket, ideally in retirement.

Gains on investments in a TFSA are never taxed – simple as that.   

How investment gains are taxed outside a registered account varies:

• Income investments are fully taxed, just like all investments in an RRSP when funds are withdrawn. In a TFSA income is never taxed; making it a full blown tax saving tool.
• Dividends are taxed but tax credits are available for eligible dividends.
• Only half of capital gains on equity investments are taxed.
• Capital losses can be used to offset capital gains going back three years or forward indefinitely.