How the Investment Decision Affects Income Tax.
Please remember that this is for illustrative purposes
only and is not intended as tax planning advice.
There are four general types of accounts
that one can invest in:
1) Traditional Investment or Cash account.
2) Registered Retirement Savings Plan (RRSP)
3) Tax Free Savings Account (TFSA)
4) Variants of a tax free account – Registered Education Savings Plan (RESP); Registered Disability Savings Plan (RDSP), etc
As an Accountant, the first question I am asked is what type of account should be used for investing in stocks in this industry. You will note that other than the traditional investment account (#1) that each of the other accounts is a form of tax shelter. These accounts also include the word “savings” in their title and savings is not the same as investing. For those of you newer to investing or just want a refresher, this is an excellent source explaining the difference between saving and investing.
The CRA can initiate an investigation into the transactions in any account. For those that fall within #2, #3, #4 above, the CRA could rule that the activity within the account is contrary to the account’s purpose – typically they rule that trading is in fact a business rather than an act of saving.
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