# Dividends, in registered or non registered accounts?



## Fraser19 (Aug 23, 2013)

Hey guys,

I have been doing my reading. I got a subscription to MoneySense magazine which I find as a helpful magazine. Most of what I have read has been about long term investing for a good future. I am a little confused about dividends and where they should be kept.

I read in MoneySense that Dividends are best in non registered accounts as they can lower taxes because the company already paid taxes on the money in the first places and they can be treated favorably for taxes. Then I have also read that they are best to keep in TFSA because there will be no taxes at all paid on the money.

So what I am wondering is, Is it better to keep dividends in a TFSA or in a non registered account?

I was planing on picking my dividends up through QuestTrade in a non registered account, and then picking up some of the TD-E series Index funds in my TFSA.

Am I on the right track here?

Also I was wondering do dividends get taxed if they are in a DRIP?


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## OnlyMyOpinion (Sep 1, 2013)

Our 2 cents would be: Fill the TSFA first (and probably the RRSP as well) - then if you still have remaining $ to invest in an non-registered (taxable) account you'll have to think about the investments types across all three. At that point, the bulk of any interest income should be in the TSFA or RRSP, and the bulk of any cdn dividends should be in the taxable account rather than the other way around. 
Dividends are income whether they are reinvested through a DRIP or whether you take the cash. But within a TSFA or an RRSP you don't need to claim or do anything with them, while in a taxable account you need to report them at income tax time.


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## nathan79 (Feb 21, 2011)

I've been researching this a lot lately as well.

It really depends on your income level and the type of dividends (eligible or non-eligible). Check out the link below for the tax rates.

If you make less than about 43K, it could literally pay to keep them in a non-registered account. If you make a higher income, compare the tax rate for dividends to what you expect your marginal rate will be upon retirement.

http://www.taxtips.ca/taxrates/bc.htm (this if for BC, I'm not sure where you live).


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## Fraser19 (Aug 23, 2013)

My salary is 43,680.00 and I make between 2000 to 3000 a year from being on call. So all in all my income is not huge, and I live in Alberta. 



nathan79 said:


> If you make less than about 43K, it could literally pay to keep them in a non-registered account. If you make a higher income, compare the tax rate for dividends to what you expect your marginal rate will be upon retirement.
> 
> http://www.taxtips.ca/taxrates/bc.htm (this if for BC, I'm not sure where you live).



The article I was reading in MoneySense was that a small Dividend income can lower the total taxes paid.

It was also my understanding that any US dividend stocks should not be in a TFSA as you need to pay tax to the USA but you can fill out a Canadian form and get most of it back, however if the money is in a TFSA that form in no longer applicable.


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## Addy (Mar 12, 2010)

Fraser19 said:


> It was also my understanding that any US dividend stocks should not be in a TFSA as you need to pay tax to the USA but you can fill out a Canadian form and get most of it back, however if the money is in a TFSA that form in no longer applicable.


This is my understanding as well, in that if you invest in a Canadian company, the dividends are taxed favourably (at 10% I believe after the credit), but US companies are taxed at your regular tax rate.


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## Spudd (Oct 11, 2011)

So at your income level, any dividends you receive in a non-registered account will be taxed at 10% (will not decrease your total taxes paid at all). 
http://www.taxtips.ca/taxrates/ab.htm

I always think it's best to first max out your registered accounts (TFSA and RRSP) as any gains within those are fully sheltered. If you have more investments than room, then at that point you can put Canadian stocks in a non-registered.


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## Westerly (Dec 26, 2010)

I think you are on the right track and I don't think there's a one size fits all that starts with the registered accts.

At $45,000 per year I would start the investing in the non-reg acct and work up from there. 

I would put whatever investment money I have against debt, re-borrow the $$ to invest in my non-registered acct (int is tax deductible where applicable) Invest the div income and capital gains (from the non-reg acct) into the RRSP (100% deduction on that lower taxed income, and keep your dividend and foreign tax credits.) Any significant capital loss positions in the non-reg acct are bought in the TFSA and sold in the non-reg acct 31 days later (keep capital losses and hopefully regain in the TFSA later.) I wish I had done this from the start.

From a logistical / PITA perspective I might continue to keep small DRIP positions in registered accts, preferably CDN in TFSA, US in RRSP.


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## Eclectic12 (Oct 20, 2010)

Fraser19 said:


> ... The article I was reading in MoneySense was that a small Dividend income can lower the total taxes paid.


It depends on what you are comparing to.

For example, those eligible dividends are tax free in a TFSA in addition to all other forms of tax. So the only way it would make sense to choose a taxable account in this situation is where one's income is low enough that one gets a tax refund. In AB, that's on income before $43,561.

http://www.taxtips.ca/taxrates/ab.htm


The RRSP depends a lot on the assumptions one makes about what one's income will be and whether there is any opportunity to pull money out of the RRSP at lower income levels (ex. retire early, don't take pension/delay CPP and pull money what was put in at $48K so that the total income is substantially less).




Fraser19 said:


> ... It was also my understanding that any US dividend stocks should not be in a TFSA as you need to pay tax to the USA but you can fill out a Canadian form and get most of it back, however if the money is in a TFSA that form in no longer applicable.


Again ... YMMV ... if the comparison is TFSA versus taxable, those with a high tax rate are likely to prefer avoiding the capital gains tax and pay the US gov't 15% on the dividends versus paying the Canadian gov't capital gains taxes plus 23.91% or 27.71% on those non-eligible dividends (see the same Alberta tax link above). 

Don't forget that the dividend income could turn out to be a drop in the bucket compared to the capital gain.


Then too - if one is getting close to the OAS clawback level of income - those eligible dividends that were so nice when earning employment or business income are a drag when one is reporting $1.38 of income for every $1 received.


Cheers


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## Eclectic12 (Oct 20, 2010)

Westerly said:


> I think you are on the right track and I don't think there's a one size fits all that starts with the registered accts.
> 
> At $45,000 per year I would start the investing in the non-reg acct and work up from there.


Or if one has TFSA contribution room and wants to keep it simple - be tax free except for US dividends in the TFSA.




Westerly said:


> ... I would put whatever investment money I have against debt, re-borrow the $$ to invest in my non-registered acct (int is tax deductible where applicable) Invest the div income and capital gains (from the non-reg acct) into the RRSP (100% deduction on that lower taxed income, and keep your dividend and foreign tax credits.) Any significant capital loss positions in the non-reg acct are bought in the TFSA and sold in the non-reg acct 31 days later (keep capital losses and hopefully regain in the TFSA later.) I wish I had done this from the start.


If one is prepared for the bookkeeping required and correctly weeding out the Nortels from the others that will have some sort of gain ... sure.

Since the OP doesn't seem to be aware that the tax benefits of eligible dividends and non-eligible dividends paid into a TFSA - I suspect there is some learning to do before complicating the situation.

... just my two cents.


Cheers


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## Fraser19 (Aug 23, 2013)

Eclectic12 said:


> Since the OP doesn't seem to be aware that the tax benefits of eligible dividends and non-eligible dividends paid into a TFSA - *I suspect there is some learning to do before complicating the situation.*
> 
> ... just my two cents.
> 
> ...


No question about that, lots to learn. This site has really opened my eyes as to how much there is to learn.


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## My Own Advisor (Sep 24, 2012)

I keep CDN dividend paying stocks non-reg. for the dividend tax credit. Holding CDN stocks there will be a nice source of income in retirement.

I also keep CDN dividend paying stocks in the TFSA, I mean, tax-free dividends! 

Lots to learn, yes, but there is value in keeping things simple. 

Regarding "do dividends get taxed if they are in a DRIP?" 

Non-registered, for tax purposes, the government doesn't care if you reinvest dividends or not, they'll tax you on that dividend income paid. This is why it helps during your accumulation years to DRIP in TFSA and RRSP, get the magic of compounding working for you as often and as much as you can, in tax-free and tax-deferred accounts respectively.


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## Fraser19 (Aug 23, 2013)

My Own Advisor said:


> I keep CDN dividend paying stocks non-reg. for the dividend tax credit. Holding CDN stocks there will be a nice source of income in retirement.
> 
> I also keep CDN dividend paying stocks in the TFSA, I mean, tax-free dividends!
> 
> Non-registered, for tax purposes, the government doesn't care if you reinvest dividends or not, they'll tax you on that dividend income paid. This is why it helps during your accumulation years to DRIP in TFSA and RRSP, get the magic of compounding working for you as often and as much as you can, in tax-free and tax-deferred accounts respectively.


So you do both and there is a reason for this I assume.

So what I have gathered at this point, is that I should open my TFSA with QuestTrade and keep place my dividends in there for now, as I am just starting out. I also intend on opening a TFSA with TD for there E series funds.


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## OnlyMyOpinion (Sep 1, 2013)

_"open my TFSA with QuestTrade and keep place my dividends in there for now, as I am just starting out. I also intend on opening a TFSA with TD for there E series funds"_
You're call, but having multiple TSFA accounts at multiple institutions may become a pain to track and maintain. Over the years we've moved to consolidate our accs.


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## Fraser19 (Aug 23, 2013)

OnlyMyOpinion said:


> _"open my TFSA with QuestTrade and keep place my dividends in there for now, as I am just starting out. I also intend on opening a TFSA with TD for there E series funds"_
> You're call, but having multiple TSFA accounts at multiple institutions may become a pain to track and maintain. Over the years we've moved to consolidate our accs.


Ok, so I have not set any of these up yet. I am wondering what problems I will encounter. 

As of right now I am not sure what kind of paperwork there will be or anything to track. My plan was to pick up one of the TD e funds and set an automatic contribution and more or less forget about it for a long time with the exception of checking on it periodically.
My account with QuestTrade which I hope to set up will be my more involved on where I want to set up a few DRIP accounts. 

I am wondering if there is something I am unaware of at this time that could create complications?


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## My Own Advisor (Sep 24, 2012)

Well, as mentioned above, having multiple TFSAs across multiple institutions is your call, but I like having just one account and using it as a retirement account, not for "savings" as by the name.

On the "Dividends" page on my site, you can read why I keep things the way I do in certain accounts, most of it for tax reasons:
http://www.myownadvisor.ca/dividends/


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## Jon_Snow (May 20, 2009)

A few years ago I read a story in the G&M about how you could pull in 50k in dividends without paying any tax. This caught my attention and I've been building up my Canadian dividend paying portfolio (in our taxable account) like a mad man ever since... though we max our TFSA's and RRSP's every year as well. Things are shaping up rather nicely....


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## My Own Advisor (Sep 24, 2012)

No doubt you're rockin' now Jon. Most people can't max out one registered account, let alone two of them!


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## Jon_Snow (May 20, 2009)

Thanks to the darn pension adjustment, it's not hard to max my RRSP every year....


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## Cal (Jun 17, 2009)

I put dividend payers in all accounts. I hold my payers that also provide return of capital in the TFSA to simplify accounting. Then some are in non registered acocunt. And one is in RRSP. IMO it depends on how many dividend payers you like, or want to have in your portfolio, as there is only so much TFSA/RRSP room, and how much free cash flow you have for investments.


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## AMABILE (Apr 3, 2009)

Jon_Snow, yes an individual will pay no tax on $50k in dividends,
BUT only if there is no other source of income.


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## Jon_Snow (May 20, 2009)

No other sources of income shouldn't be a problem... actually, it's one of my goals. :tongue-new:


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## AMABILE (Apr 3, 2009)

that's terrific......... .so no OAS / CPP / RRSP withdrawal / interest income ?


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## Jon_Snow (May 20, 2009)

Not for a long time, no. I'm 42.


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## AMABILE (Apr 3, 2009)

You smart , lucky guy.
I'd love to strive for that also, but can't
I collect OAS / CPP / RIFF / interest / and just got rid of rental income.


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## AMABILE (Apr 3, 2009)

Sorry for being so curious and puzzled.
but how and when will you have zero income ??


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## Eclectic12 (Oct 20, 2010)

AMABILE said:


> Jon_Snow said:
> 
> 
> > A few years ago I read a story in the G&M about how you could pull in 50k in dividends without paying any tax... Thanks to the darn pension adjustment, it's not hard to max my RRSP every year....
> ...


+1 ... since there is mention of a PA, delaying collecting the pension might give a period where that $50K in dividends does not generate taxes but as soon as the pension income (and CPP) kicks in, there will be taxes to pay.

Then too, when the income text for OAS comes into play, that $50K of eligible dividend income will be reported as something like $69K for the income test, despite not paying taxes. In 2013, that would mean any additional incomeof $1954 puts one's income into the clawback territory. (The income could be pension, CPP/QPP, investments, interest etc.).

http://retirehappy.ca/minimizing-old-age-security-clawback/


Cheers


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## Eclectic12 (Oct 20, 2010)

Jon_Snow said:


> No other sources of income shouldn't be a problem... actually, it's one of my goals. :tongue-new: ... Not for a long time, no. I'm 42.


Hmm ... I can see where if one owned a business and was the shareholder so that only dividends were paid - that would be a case with "no other sources of income". I'm not clear where a PA would come from.


Cheers


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## Eclectic12 (Oct 20, 2010)

Fraser19 said:


> No question about that, lots to learn. This site has really opened my eyes as to how much there is to learn.


What's written tends to be simplified to explain the point ... and then the fun begins as one learns that "one size does not fit all".


Cheers


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## AMABILE (Apr 3, 2009)

Jon_Snow
No other sources of income shouldn't be a problem... actually, it's one of my goals. 
I'm 42.
Sorry for being so curious and puzzled.
but how and when will you have zero income ??


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