A.T. Financial Newsletter
Asset location: Sometimes it's personal
It's common to hear about asset allocation, but asset location, not so much. Yet asset location is very important — it’s all about determining the most suitable investment vehicle for each mutual fund you hold.

To start, you're generally best off taking full advantage of the tax breaks the government gives you by contributing your maximum allowable amounts to your Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). But when you have both
registered and non-registered accounts, a number of factors come into play that can influence which types of investments go where.

Usually we base asset location on what's most favourable from the tax perspective, in order to maximize after-tax returns. But it's also important to take into account your personal investment objective and time horizon, which can change things.

Here are three scenarios using the exact same investment, but with three different asset location outcomes.
Thomas and his RRSP
Thomas, 40, is building his retirement nest egg and invests $5,000 in a Canadian short-term bond fund as part of his fixed-income portfolio. He holds this investment in his RRSP. Thomas is following the tax-smart asset location guideline to hold fixed income in an RRSP and equities in a non-registered account.

In a non-registered account, interest income is taxed most heavily, at the same rate as employment income. Equities are more favourably taxed, with tax payable on 50% of capital gains, and only when realized. Canadian dividend-paying funds also receive favourable tax treatment, thanks to the dividend tax credit.

So Thomas holds more lightly taxed equity and Canadian dividend funds in his non-registered account, since he'd lose their tax advantages in his RRSP. And he keeps more heavily taxed fixed-income funds in his RRSP, where they can grow on a taxdeferred basis until withdrawal. Since Thomas is only 40, that could easily be 25 or 30 years in the future.
Veronika and her TFSA
registered andVeronika is saving up for a family trip to Europe. She puts $5,000 into a Canadian short-term bond fund that she holds in her TFSA. Her TFSA is ideal for this purpose - the money can grow tax-free, she can withdraw it tax-free, and she can replenish the funds starting the year after the withdrawal.

The funds you hold in a TFSA are dictated by your investment objective and, of course, your available contribution room. In Veronika's case, her low-risk choice suits saving for a trip. Low-risk funds would also be appropriate for an emergency fund.

TFSAs aren’t just for short-term goals, however. In fact, when the goal is long term, it suits many investors to choose funds with the highest potential returns for their TFSA. The higher the returns, the greater the tax would have been if earned outside a TFSA.
Amir and his non-registered account
registered and non-registered Amir is four years away from retirement. He makes a large fixed-income investment in his non-registered account, including $5,000 in a Canadian short-term bond fund. It's part of a plan Amir and his advisor put together to protect against the risk of a market downturn in these critical upcoming years. He invests in short-term bonds because they had positive returns during the 2008 market crisis, though he recognizes that past performance may not indicate future results.

The overall plan revolves around funding the initial years of Amir's retirement. He's going to begin drawing retirement income from his non-registered account, so that's where he is now plac
Locating your mutual funds are especially helpful in managing asset location. Investments can be assigned to an RRSP, TFSA, or non-registered account with only a few decisions. In addition, fund companies provide tax slips identifying distributions by type of income, which helps in making taxrelated asset location decisions.

We're here to help ensure your funds are in the vehicles that meet your personal investment objectives while taking advantage of potential tax benefits.
For more information,
please contact us at

(647) 833-2782