Non-registered accounts in retirement: how taxable investing fits in

What makes an account non-registered

A non-registered account is any investment account that isn't an RRSP, RRIF, TFSA or other registered plan. There's no contribution limit, no deduction for putting money in, and no required withdrawals at any age.

Because there's no tax shelter, investment income is reported on your tax return each year it's earned. When you sell an investment, you report any gain or loss compared with what you paid. Withdrawing cash you already paid tax on, however, doesn't create new taxable income on its own — a key difference from an RRSP or RRIF, where every dollar withdrawn is taxable.

Non-registered accounts can be held individually or jointly. For couples, whose money funded the account can affect who reports the income, and attribution rules can apply when one spouse gives or lends money to the other to invest. Confirm the rules with the CRA.

How investment income is taxed

Different kinds of investment income are treated differently on a Canadian tax return. In broad terms:

• Interest from savings accounts, GICs and bonds is generally fully taxable each year, at your marginal rate.
• Eligible dividends from Canadian corporations are grossed up and then reduced by the dividend tax credit, which usually lowers the tax compared with interest. The grossed-up amount is what counts toward net income.
• Capital gains are taxed only when an investment is sold, and only part of the gain is included in income. Check the current inclusion rate with the CRA.
• Return of capital distributions from some funds aren't taxed when received but lower your cost base, which raises the gain when you eventually sell.

Cost base: the record that matters most

To work out a capital gain, you need the investment's adjusted cost base (ACB) — roughly what you paid, including commissions, adjusted for reinvested distributions and return of capital. Gain or loss equals the sale proceeds minus the ACB.

Brokerages often report this, but not always completely, especially for older holdings or investments moved between institutions. Keeping your own records — purchase confirmations, annual tax slips and distribution details — helps avoid overstating or understating gains. If you're unsure about a holding, the CRA has guidance on calculating and reporting capital gains.

Records matter for your estate as well. An executor will need cost base information to complete a final return, and missing records can make that job harder.

Louise's plan in Ontario

Suppose Louise, 70, is retired in Ottawa with $220,000 in a RRIF-bound RRSP, $90,000 in a TFSA and $260,000 in a non-registered account. She receives CPP (an estimate of $1,200 a month at 65, started at 65) and the full OAS, and wants $50,000 a year of after-tax spending in today's dollars.

The planner uses an illustrative 5% return and 2% inflation. Instead of tracking each dividend and gain, it assumes a share of the non-registered account's yearly growth — 25% in this case — is lost to tax, while withdrawals themselves aren't taxed again. That's a simplification of the rules above, not a precise calculation.

Following the conventional order, Louise draws about $27,977 from her non-registered account at 70, and her estimated income tax that year is only about $1,527, because her taxable income is mostly CPP and OAS. From 72, RRIF minimums begin; at 75 she takes about $12,477 from the RRIF and about $17,135 from the non-registered account. That account is nearly empty by 85, when her TFSA, which has grown to about $143,109, carries more of the load.

Where non-registered money fits in withdrawal order

The calculator compares four withdrawal orders on Louise's plan. Drawing non-registered savings first gives an estimated lifetime tax of about $101,829 and leaves about $43,386 after tax at 95. Drawing the RRIF first lowers estimated lifetime tax to about $88,416 but leaves about $20,605. Filling a lower tax bracket from the RRIF each year gives about $88,388 and $20,752, and drawing the TFSA first gives about $99,335 and $24,321.

That trade-off — lower lifetime tax in one order, a larger ending balance in another — comes partly from the planner's assumption that money left in the non-registered account keeps losing some of its growth to tax each year. None of the four orders runs short before 95 in this illustration.

Which result matters more depends on goals: steadier taxes during life, or more left for heirs. The withdrawal order tool runs the same comparison with your figures, and our withdrawal order guide explains the logic.

How much the tax-drag assumption matters

Because the share of growth lost to tax is an assumption, it's worth testing. Holding everything else the same, the highest steady spending Louise's plan supports to 95 is about $51,100 a year with a 25% drag, and about $51,500 with a 10% drag.

In her case the difference is modest, partly because the non-registered account is spent down by her mid-80s. For someone with a larger taxable account held for longer, or with mostly interest-paying investments, the assumption would matter more.

Non-registered income, OAS and the GIS

Non-registered income counts toward net income, which is what the OAS recovery tax and the GIS look at. Interest counts in full, dividends count at their grossed-up amount, and the taxable part of capital gains counts in the year of sale. A large one-time sale can therefore raise net income for that year.

Some retirees spread sales over several years or match gains with losses to manage this, while others move money gradually from non-registered accounts into TFSAs as room opens up each year. Our OAS clawback guide shows how net income is tested.

Estates and next steps

Some retirees also donate appreciated securities from non-registered accounts to registered charities, which can be treated differently from a cash donation. The CRA or the charity can explain how this works.

On death, non-registered investments are generally treated as if they were sold, so accrued gains are taxed on the final return unless they pass to a spouse or common-law partner, where a rollover may apply. Confirm the rules with the CRA, and see our estate planning basics guide.

To see how a taxable account interacts with RRIFs and TFSAs over a full retirement, try the retirement plan tool. The taxes FAQ covers common questions about investment income.