A non-registered account also known as a cash account is a investment account that is not registered with the Canadian government. These type of accounts do not provide tax-deferred growth and are utilized by Canadians when they’ve maxed out their registered accounts such as an RRSP or a TFSA. There is no limit on the amount of money you can deposit into a non-registered account but withdrawals might be subject to capital gains which are discussed below.
Usages of Non-Registered Accounts
If you’re a Canadian resident who has maxed our their Tax Free Savings Account or their Registered Retirement Savings Plan, you’re probably wondering how will you be able to invest your additional funds? This is where a non-registered account would come into play. Non-registered accounts can be an integral part of your investing philosophy as there is no limit in how much you could contribute. Most investors often use non-registered accounts if they’re;
Borrowing to Invest – With a non-registered account, you’re able to utilize leverage and invest on margin, meaning that you would borrow money from the brokerage and invest it. The amount of money that you will be allowed to borrow would depend on your account size and the brokerage’s policies.
Example: Jim had a $100,000 non-registered account. The brokerage's policies allow him to borrow maximum 20% of his account value. Jim borrowed $20,000 in which he invested in Bell stock. Jim would be paying an interest on the $20,000 borrowed at a pre-determined rate. The interest payments would be tax-deductible and proper recordkeeping should be kept. In addition it's important to note that if Jim's account size drops below a certain threshold, he would receive a margin call.
Seeking Flexibility– Non-registered accounts offer the most flexibility of all investment accounts. You’re able to deposit and withdraw at your convenience, invest in various type of products and not have to worry about overcontributions. However, one important consideration for cash accounts is the capital gain factor. Investments sold at a profit would be subject to capital gains and investments sold at a loss would generate a capital loss.