Asset Location

Asset location is about choosing which account to hold each investment in. It’s different from asset allocation, which is about what you invest in. Asset location is about where you put it.

The idea is simple: different account types are taxed differently, and different investments generate different types of income. By matching them thoughtfully, you can reduce the total tax you pay over time.

How it works in practice

In Canada, you have three main types of accounts, each with different tax treatment:

• TFSA: Growth and withdrawals are completely tax-free
• RRSP: Contributions are tax-deductible, but withdrawals are taxed as income
• Non-registered: Capital gains and dividends are taxed in the year they’re earned, but at preferential rates

A common approach is to hold US stocks in an RRSP (to avoid US withholding tax on dividends), put your highest-growth investments in your TFSA (where gains are never taxed), and keep Canadian dividend-paying stocks in a non-registered account (where the dividend tax credit reduces the tax owed).

Why it matters

Asset location won’t make or break your financial plan, but it can add up over decades. It’s one of those optimizations that costs nothing to implement and quietly saves you money year after year. For a detailed walkthrough, see our asset location guide.

Example

Say you hold $50,000 in a U.S. stock ETF that pays a 1.5% dividend ($750 per year). In an RRSP, that dividend is exempt from the 15% U.S. withholding tax thanks to the Canada-U.S. tax treaty. In a TFSA, you’d lose $112.50 of that $750 to withholding tax every year. Over 20 years, that one decision could save you over $2,250 in taxes on a single holding.