Cash Account

Cash Account

A cash account is a non-registered account, meaning that this type of account does not offer the same tax-sheltered status as registered accounts, such as RRSPs or TFSAs.

They are general investment accounts where you can invest in a wide-rage of assets and are required to pay taxes annually on interest income, realized net capital gains, or dividends generated within the account.

Even if you do not plan in invest money into a cash account, cash accounts are necessary in facilitating cash transfers from one registered account to another registered account, or from a registered account to your bank account

  • For example, if you would like to withdraw money from your TFSA, this money must first pass through your cash account before it can enter your bank account.
    One of the greatest benefits of cash accounts are that account fees generated by this account are tax deductible if your accounts are fee-based.

    As described above, there are three ways in which your earnings are taxed:

  • Interest income generated is taxed at your marginal rate

  • Growth is taxed as a capital gain (only if the investment has been sold within the respective tax year and net capital gains are realized)

    • Only 50% of your capital gain is taxed, and the amount being taxed is taxed at your marginal rate

      • For example, you buy ABC stock for $10,000. Over time ABC stock grows to $20,000. You decide to sell the stock and realize the gain.

        • The gain is now considered “realized gains”, meaning they are now subject to being taxed, since the asset (ABC stock) has been sold. Because stock ABC grew by $10,000, you will only be taxed on half of this gain, therefore $5,000. This $5,000 will be taxed at your marginal rate.


      • An “unrealized gain” is considered potential profit that exists on paper, resulting from an investment. It is an increase in the value of an asset that has yet to be sold for cash. A gain becomes realized once the position is sold for a profit.

  • Dividends are either considered eligible or non-eligible.

    • These two types of dividends are differentiated because they are each taxed differently. You’ll be able to note on your T5 statement of investment income whether your dividend is eligible or ineligible.

    • As a rule of thumb, dividends you earn from Canadian domiciled publicly traded companies are eligible dividends. Non-eligible dividends are generally earned from CCPCs(Canadian Controlled Private Corporations).

    • Eligible dividends receive an enhanced dividend gross up and tax credit, and bottom line is they are taxed at a lower rate than non-eligible dividends.

    • There are also Foreign source dividends received from publicly traded companies outside of Canada, in the US for example. These dividends are taxed as ordinary income (like interest income), and are also subject to a 15% foreign withholding tax.

  • We recommend to work with a tax preparation expert to ensure all dividends are properly filed.

    Lastly, as your Investment Advisors, we also seek to minimize taxation and create tax efficient Cash Account portfolios as much as possible.