Asset location: which account holds which asset

Two people can own exactly the same investments in exactly the same proportions and end up with materially different after-tax wealth. The difference is not what they bought — it is which account each holding sits in.

Start from the tax rates on income types

In a non-registered account, the same dollar of return is taxed very differently depending on how it arrives:

Interest — taxed in full at your marginal rate. The most heavily taxed form of investment income there is.
Capital gains — only 50% included in income, and only when realised, which you control.
Canadian dividends — grossed up by 38% and partly credited back, landing between the other two on tax but counting in full against income-tested benefits.
Foreign dividends — taxed as ordinary income, often after foreign withholding tax.

Where the general logic points

Interest-bearing holdings are the most expensive to hold in a taxable account, so sheltering them captures the most tax. Holdings that generate mostly deferred capital gains are the cheapest to hold outside, because they are half-included and taxed only when sold. That is the shape of the standard argument, and it is a starting point rather than a conclusion.

Three complications push back. Growth inside an RRSP is eventually taxed in full on withdrawal, so sheltering a high-growth asset there converts what would have been partially-taxed gains into fully-taxed income. A TFSA has no such problem, which makes it the most valuable location for expected growth. And foreign withholding tax is treated differently across account types, which cuts across the whole argument.

The constraint nobody mentions

Asset location requires enough money in more than one account type for the choice to exist. A household with almost everything in an RRSP has no location decision to make. It also assumes you can rebalance across accounts without triggering the very gains you were trying to defer — which in practice limits how far an existing portfolio can be rearranged.

Priya has the room to make the choice

Priya — 54, Ontario, single. $118,000 salary, $410,000 in her RRSP and $88,000 in her TFSA, planning to retire at 63.

She holds $410,000 registered, $88,000 tax-free and $60,000 taxable. Only the last of those is exposed to the income-type distinctions above, at a marginal rate of 37.2% while she is working.

Priya holds $410,000 registered, $88,000 tax-free and $60,000 taxable, so only the smallest of her three accounts is exposed to the tax differences between interest, dividends and capital gains — which is what makes an asset location decision available to her at all. — The taxable slice is where income type matters. Its size sets the size of the prize.

That third bar is also the honest limit on the idea. Asset location can only save tax on the income the taxable account generates, so the benefit scales with how much sits there. For a household whose savings are almost entirely registered, this is a smaller lever than the drawdown-order decisions earlier in this series.

Why this is advisory rather than measured

A projection models a return per account, not the composition of income inside each one, so it cannot honestly report a dollar figure for a location change. Rather than invent one, the advice engine flags this as a consideration and says so. A number produced by a model that does not track the underlying mechanic would be worse than no number.

The accounts view shows each balance separately across the whole projection, which is the first thing to know before deciding whether a location change is worth the complexity.

See the accounts you have to work with

Next: inflation — the risk that never shows up on a statement.

GlidePathEngine is an educational planning tool — not financial, investment, tax, or legal advice.