Non-Registered Investments

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Informal Trust Accounts - What are they?

An In-Trust account is another way to save for a child’s higher education, or simply for the child’s future. With an In-Trust account, the investor manages money for the child until the child reaches the age of majority. At that point, the investor can make any necessary arrangements. There may also be tax advantages. If structured properly, the child may pay taxes on the growth (capital gains) in an In-Trust account. Since the child in all likelihood will be in a low to zero tax bracket, he or she will pay little tax if any at all. There is no CESG (Canadian Education Savings Grant) payable to the child in this type of account. Other benefits to this type of account are…

• Contribute as much as you want – no limit
• All capital gains may be taxed in the hands of the child
• You, as the investor, are taxed on all interest, dividends, foreign, and other income if earned while a resident of Canada
• If the funds come solely from the Child Tax Benefit payments or an inheritance, then all income is taxed in the hands of the child
• The money stays in the hands of the child once he or she has reached the age of majority, regardless of if they pursue post-secondary education or not.

Joint Ownership – What is it?

There are two types of joint ownership: Joint with Right of Survivorship and Tenants in Common. Joint with right of survivorship provides two or more persons with simultaneous rights of ownership of an account. Upon the death of one owner, the deceased’s interest in the account terminates leaving the surviving owners with full ownership despite any attempted disposition in the deceased’s will. This also reduces or eliminates probate fees. Tenants in common differs in the sense that there is no right of survivorship associated with it. When a co-tenant dies, his or her share passes on to the heirs through the will or via intestacy (where there is no will).

What investments are best to hold in a non-registered account?

Generally speaking, it is better to hold interest and dividend paying investments inside of an RRSP and capital gains investments in a non-registered account. However, taxation should almost always be the secondary consideration. The primary objective is investment suitability. Within mutual funds, there are two types of structures. Originally, mutual funds were formed as mutual fund corporations. As the industry evolved, mutual fund trusts became more prevalent as they proved to be more tax efficient in passing income along to the investor. However, there has recently been renewed interest in mutual fund corporations. With a special rule in the income tax act, an investor can switch between the same classes in a mutual fund corporation without triggering capital gains taxes. These are often called capital class funds. The tax is deferred until the fund is either redeemed or moved out of that class structure. For more information on suitability and taxation in non-registered accounts, please Contact Us.

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