Where should I keep my dividend stocks?

When I first started as a Canadian dividend growth investor, one of the first questions I had was where should I keep my dividend stocks. Given all the different types of accounts available to Canadians, finding the most tax-efficient way to hold dividend stocks can get confusing.

Before determining which accounts to keep your dividend stocks, first we need to understand the different accounts available to Canadians. In short there are 2 types of accounts you can hold dividend stocks in Canada – regular accounts and tax advantage accounts.

Regular Accounts

With regular accounts, capital gains and dividends are taxed. However both are taxed at a much lower rate than your working income. For the respective tax rate, this website is a great place to check out. 

BC tax rates

If you hold US stocks in a regular account, the US government will first collect a 15% withholding tax on any dividend income that you receive. Since US dividends do not qualify for the Canadian dividend tax credit, US dividends will be taxed like interest income (i.e. at your marginal tax rate). Not ideal but you do get a foreign credit for the amount withheld by the 15% withholding tax. The foreign credit can then be applied used for deduction when you file your Canadian income tax.

Tax Advantage Accounts

When it comes to tax advantage accounts, there are a few options available to Canadians. The most common tax advantage accounts are – RRSP, RESP, and TFSA.

RRSP – Registered Retirement Savings Plan

A quick note on opening a self-directed RRSP account. Some brokers will charge an annual fee unless you have certain amount of money in your RRSP account. If you think about it, It’s a silly fee since these brokers aren’t really doing anything for you. So definitely do your research prior to opening a self-directed RRSP.

With RRSP, you’re only taxed when you withdrawal from the account. What makes RRSP so awesome is you get a tax deduction at your marginal tax rate for money you put in. Furthermore, due to tax treaty between US and Canada, you are exempted from paying the 15% withholding tax on US dividends.

RESP – Registered Education Savings Plan

With RESP, you can contribute $50,000 per child until the child turns 31. RESP is meant for post secondary saving for your children. Although you don’t get tax deductions for RESP, the Canadian government will contribute to your child’s RESP to help their savings grow. Such contribution is called the Canada Education Savings Grant. The basic CESG provides up to a maximum of $500 on an annual contribution of $2,500. This grant is available up until the end of the calendar year in which the child turns 17. When RESP is withdrew, the amount is taxed on the recipient’s tax rate. Since RESP is meant for post secondary students, the recipient, in this case, the student, will usually pay little or no income tax due to tuition credits.

Unlike RRSP, you need to pay the 15% withholding tax on US dividend income.

TFSA – Tax Free Savings Account

TFSA is my favourite tax advantage account. The idea is very simple, each year the Canadian government announces the contribution limit. The money you put inside a TFSA can then grow tax free. If you withdraw any amount from TFSA, you won’t get taxed and you can contribute that amount again in the future plus any additional contribution limits. The beauty of TFSA is that any dividends and capital gains are tax free, making TFSA the perfect vehicle for Canadian dividend growth investors. Although TFSA is a registered account, if you receive US dividends, you will need to pay the 15% withholding taxes and will not receive any foreign tax credits.

Where should I keep my dividend stocks?

With so many accounts, which accounts should I use for dividend investing for maximum tax efficiency? After a bit of research and calculation, below is a quick summary.

Regular Accounts

  • Best for holding Canadian dividend stocks that pay eligible dividends.


  • Best for holding US dividend paying stocks and US listed ETFs.


  • Best for holding Canadian dividend stocks and Canadian income trusts & REITs.


  • Best for holding Canadian dividend stocks and Canadian income trusts & REITs.


Notice that I do not recommend holding Canadian income trusts & REITs in regular accounts. Income trusts and REITs typically pass their income, return of capital, interest, capital gain, foreign business income to the shareholders as part of the distribution (i.e. dividend). Each portion will then be taxed at a different rate. This results in complicated tax calculation, especially when you are enrolled in dividend reinvestment plan (DRIP) and sell the shares later. To avoid any headache and complicated math, keep income trusts and REITs inside a RRSP, RESP, or TFSA.

Dear readers, do you follow similar plan when it comes to holding your dividend paying stocks?

Written by Tawcan
Hi I’m Bob from Vancouver Canada, I am working toward joyful life and financial independence through frugal living, dividend investing, passive income generation, life balance, and self-improvement. This blog is my way to chronicle my journey and share my stories and thoughts along the way. Stay in touch on Facebook and Twitter. Or sign up via Newsletter