A SHORT GUIDE TO TAXES AND INVESTING IN CANADA

Investing in stocks as a Canadian, as is the case with any country, will bind you to a specific set of rules about how your gains and losses should be treated for tax purposes.

Far from a tedious, sleep-inducing bore, investment taxation in Canada is relatively simple to learn and enforce, allowing you to minimize the hard-earned dollars you hand over to Canada Revenue Agency, take full advantage of compound interest and grow your portfolio towards funding your financial goals. There are only three main investment accounts you need to know about:

・The Tax-Free Savings Account, or TFSA, in which investments grow tax free.

・The Registered Retirement Savings Plan, in which investments grow tax deferred.

・The Taxable or Non-Registered Account, in which taxes must be paid on investment income and profitable sales.

Become familiar with the tax implications of all three accounts, and you will be ready to optimize the dollars that end up in your pocket once it’s time to liquidate an investment. Let’s begin with the most generous among this trio of accounts, the TFSA.

Taxes and investing in the TFSA

As the name makes clear, all investment gains within a TFSA are yours to keep, with no taxes applicable to them at any time.

Unsurprisingly, such an attractive benefit has a limit, with total contribution room rising by only a few thousand dollars every year – currently capped at C$102,000 as of 2025 – leaving little room for error in terms of security selection.

It stands to reason that you should hold your highest-potential stocks in your TFSA to ensure maximum profits. This may include a diversified portfolio of small and micro-cap stocks for their added leverage compared to large-cap counterparts, value plays underpricing long-term potential, or wherever your due diligence takes you in search of differentiated returns.

Taxes and investing in the RRSP

When it comes to the RRSP, taxes can get slightly more complicated, but are no cause for concern, so long as you stay true to your personal financial situation. Here are three essential points to consider:

・Every dollar you contribute to your RRSP, subject to a limit tied to your yearly income, can be deducted from your taxable income in the current year, or any future year, should you decide to wait. In other words, for any year with contributions, you may be able to decrease your income into a lower tax bracket.

・Though investments grow tax-deferred in the RRSP, every dollar you withdraw is taxed as income, requiring careful tax considerations depending on how you’re making a living at that time.

・The third and perhaps most crucial point Canadian investors need to know about RRSPs is that you can’t access your money with the same freedom as a TFSA:

The key takeaway when it comes to RRSPs is this: Since your funds will ultimately be taxed as income, you must be aware of how withdrawals will affect your income over the course of your life and plan accordingly, making sure to time your RRIF conversion in line with your needs at that time.

Taxes and investing in the brokerage or non-registered account

Should you be lucky enough to run out of contribution room in your TFSA and RRSP, you may want to allocate any leftover funds into a brokerage or non-registered account, in which you must pay taxes on dividends or profitable stock sales.

Arguably the most complex account for Canadians to master from a taxation perspective, the brokerage account still provides a valuable service, allowing you to build long-term wealth on a diminished scale compared to tax-advantaged accounts, but wealth nonetheless, with the benefit on unlimited contributions.

You really only need to know these two things:

・When it comes to paying taxes on dividends, investors must calculate what they owe by grossing up their payments depending on whether or not they qualify for the federal dividend tax credit. Companies will make this clear in related press releases by referring to the dividend as eligible or non-eligible.

・When it comes to selling a stock at a capital gain, the Canadian government expects you to add half of this gain to your taxable income, with the remaining half being yours to keep in its entirety. On the flipside, should you choose to lock in a loss, you can apply it to reducing your taxable income in the year of the sale, in any year up to three years in the past, or in any future year of your choosing.

Many investors, especially those intent on retiring early, consider a brokerage account to be a bridge between initial retirement years and the planned draw-down periods for their RRSPs and TFSAs.

Others use them for tax diversification purposes, granting them some flexibility should new legislation about RRSPs and TFSAs force them to change their financial plans.

Whatever the reason that compels you to open a brokerage account, take care to keep detailed files on every trade you make – including time, number of shares, total dollar amount and currency conversion rates if applicable – all of which you’ll need to substantiate claims for capital gains or losses on your tax return.

A few taxation tips for the road

Now that you have a grasp on how stocks are taxed in Canada, you can focus on what really matters, namely, making regular contributions to your investments, giving them the best chance at compounding into the funds you need to make your long-term goals a reality.

To help you along in this journey, here’s a handful of tips to ensure your experience with taxes and investing is as smooth as possible:

・Sign up online for My Account with the Canada Revenue Agency, offering you access to all of your tax-related information in one place.

・Do not hesitate to seek the assistance of a certified tax professional should your financial situation evolve into more complex assets, such as options or private companies, where experienced eyes can make a tangible difference in terms of avoiding penalties and maximizing available benefits.

・Keep a trusted list of financial news sources to not miss out on any changes in Canadian tax legislation, which may include MoneySense, The Globe and Mail or BNN Bloomberg, to name just a few.

・Specify buying and selling strategies for each of your stocks or stock funds to clarify long-term portfolio planning.

Overlapping these suggestions is the fact that investing is not useful in itself, it’s a means to an end, leaving it up to you to dream up purposes worthy of saving money for a decade or two before they can come to pass.

There’s no wrong answer, so long as you keep happiness and your values front-and-center as you put money to work and build your stake in the global economy.

What are those purposes for you? And how are you investing and navigating taxes to best achieve them?

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The material provided in this article is for information only and should not be treated as investment advice. For full disclaimer information, please click here.

2025-06-13T20:15:10Z