Most Canadian investors have heard of TFSAs and RRSPs—but what about the lesser talked-about Cash account, also known as a non-registered account? That’s right, for those lucky enough to be maxing out their registered TFSAs and RRSPs every year, the Cash account comes into play.
It might not have the rather fantastic tax shelters, but don’t count it out. When used wisely, a Cash account can be a flexible, tax-efficient way to build your wealth, especially once you understand how different investments are taxed.
So, let’s break it down. As always, though, be sure to chat with your financial advisor to get up-to-date information before diving in head-first.
What Is a Cash Account?
A Cash account (or non-registered account) is an investment account that:
- Has no contribution limits
- Allows full access to your money (no withdrawal penalties)
- Does not offer tax sheltering, so any income you earn is taxed
That might sound like a downside, but with the right investments, a Cash account can be surprisingly tax-smart.
How Investment Income Is Taxed in a Cash Account
In a non-registered account, the Canada Revenue Agency (CRA) taxes different types of investment income in different ways:
| Income Type | Tax Treatment |
| Interest income | Fully taxed at your marginal tax rate (highest tax hit, ouch) |
| Capital gains | Only 50% is taxable at your marginal rate (that’s nice of them) |
| Eligible dividends | Receive a dividend tax credit to reduce your tax payable (why, thank you, Gov of Canada!) |
| Foreign dividends | Fully taxed at your marginal rate, no dividend tax credit |
How the Dividend Tax Credit Works
The dividend tax credit is a built-in reward for Canadian investors who own eligible dividend-paying stocks in a Cash account. I mean, it makes sense, they’re just keeping our $$$ in Canada to support our economy.
Here’s how it works:
- You receive an eligible dividend (usually from a large Canadian public company).
- The dividend is grossed up by 38% to reflect what the company earned before paying tax.
- Example: $1,000 dividend → reported as $1,380 in taxable income.
- You receive:
- A federal tax credit of 15.02% of the grossed-up amount
- A provincial tax credit (varies by province, usually 8–11%)
Result?
Your actual tax payable on those dividends is much lower than on interest income, and often even lower than capital gains.
But only in a Cash account
Dividends received inside a TFSA or RRSP grow tax-free, but you don’t get the dividend tax credit in those accounts.
Best Investments for a Canadian Cash Account
To keep taxes low and long-term returns high, here’s my take on the most tax-efficient options for your non-registered account (but remember to do your own research!):
1. Canadian Dividend-Paying Stocks
- Banks, telecoms, utilities, and other blue-chip stocks
- Benefit from the dividend tax credit
- Provide steady income with potential for capital growth
2. Growth-Oriented ETFs or Stocks
- Focus on capital appreciation over distributions
- Tax is deferred until you sell, and only 50% of the gain is taxable
- Ideal for a long-term, buy-and-hold strategy
3. Tax-Efficient ETFs
- Look for low-turnover index ETFs or swap-based ETFs designed for non-registered accounts
- These reduce annual taxable distributions and maximize after-tax returns
What NOT to Hold in a Cash Account
Some investments are taxed quite harshly in a non-registered account. Here’s what to keep in your TFSA or RRSP instead:
❌ GICs and Bonds
- Generate interest income, which is fully taxed at your top or marginal rate
- Better held in RRSPs, where interest grows tax-deferred
❌ Foreign Dividend Stocks
- Dividends from U.S. or international stocks are fully taxable
- No dividend tax credit applies
- U.S. stocks also face a withholding tax (15%)—unrecoverable in a TFSA so best to invest in these in your RRSP
❌ REITs (Real Estate Investment Trusts)
- Distributions are often treated as other income, not dividends or capital gains
- Can result in complicated tax slips and higher taxes (groan)
Asset Diversification Strategy for a Cash Account
Think of your Cash account as the home for your most tax-efficient assets. Here’s how I structure it:
| Asset Type | Why It Works in a Cash Account |
| Canadian dividend stocks | Eligible for dividend tax credit |
| Growth stocks & equity ETFs | Tax-deferral + capital gains taxed at 50% |
| Tax-efficient index ETFs | Minimizes annual taxable distributions |
Combine these with your RRSPs (for income-generating assets) and TFSAs (for aggressive growth) to create a tax-optimized, diversified portfolio. So much to consider, isn’t there?
My Final Thoughts
A Cash account isn’t second best—it’s just different. With no limits, full flexibility, and access to the dividend tax credit, it can be a powerful part of your long-term strategy. Not to mention, this is necessary once you’ve maxed out your TFSA and RRSP annually.
Use it to:
- Hold tax-efficient investments
- Take advantage of the dividend tax credit
- Diversify across account types
- Keep more of your hard-earned returns
So, now you know, investing smartly isn’t just about what you invest in—it’s about where you hold those investments.
Do your research or chat with a qualified financial advisor if you’re still not sure. Good luck and happy wealth building!
