Tax season is approaching, and understanding where you hold your investments and what tax documents to expect can help you prepare properly and efficiently. Whether you're reviewing your current account structure or preparing tax documents, the process can be streamlined if you know the fundamentals of tax location strategy and what to expect from your investment accounts.
This guide provides general tax education. Tax treatment depends on individual circumstances; therefore, we advise you consult a qualified tax professional regarding your specific situation.
Tax Location Strategy
Tax location strategy considers where different types of investments should be held to improve tax efficiency. This depends on how each investment is taxed and the tax treatment of different account types.
Income-producing investments that generate interest income or foreign dividends are usually better held in tax-sheltered accounts such as RRSPs and TFSAs. Why? In this case, interest and foreign income are fully taxable at your marginal tax rate, so the tax shelter is especially valuable.
Dividend-paying investments and those that grow through capital appreciation tend to be more tax-efficient in non-registered accounts. Canadian dividends benefit from the dividend tax credit, while capital gains are taxed at only 50% of your marginal rate, making them more tax-friendly than interest income.
That said, tax efficiency is just one consideration. Investors need to weigh other important variables when deciding account placement:
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Risk suitability: Does the investment match the account's purpose and timeline?
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Liquidity needs: Will you need access to these funds?
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Time horizon: How long until you'll need the money?
Tax planning works best when integrated with your overall financial strategy. Consider how account placement decisions align with your investment objectives, timeline, and risk profile.
Expected Tax Documentation
If you held investments in a non-registered account during 2025, you'll receive tax information slips in early 2026. The type of slip and who issues it depends on your investment structure:
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Mutual fund slips are issued directly by the fund company.
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ETF tax slips are provided by the record keeper for the account (e.g., your custodian or brokerage firm).
Segregated accounts holding individual stocks (such as the Capstone Canadian Equity Income Strategy, or CCEIS) receive tax slips from the record keeper for the account (e.g., your custodian or brokerage firm).
The specific tax treatment differs based on the source and type of income generated by your investments. If you hold investments in registered accounts such as RRSPs, TFSAs, or RESPs, you generally won't receive tax slips for fund distributions. This is because the income earned within registered accounts grows tax-deferred or tax-free, depending on account type.
Applying Tax Location Strategy: Two Examples
To illustrate how tax location strategy works in practice, let's look at the Capstone Biblically Informed Canadian Equity and U.S. Equity Funds: one generates tax-advantaged income, while the other doesn't.
Canadian Dividend-Paying Investments
The Capstone Biblically Informed Canadian Equity Fund focuses on dividend-paying securities within its biblical research framework, creating specific tax advantages for non-registered accounts.
The Dividend Tax Credit: When Canadian public companies pay dividends, they've already paid corporate tax on those profits. The dividend tax credit reduces double taxation by acknowledging the tax paid at the corporate level, making Canadian dividend income more tax-efficient than interest or foreign dividend income.
Your tax slip shows eligible dividend income received. This flows to your tax return, where the dividend tax credit is calculated based on the grossed-up dividend amount and your marginal tax rate.
Canadian dividend tax advantages only apply in non-registered accounts. This is why some investors place these investments there, using registered accounts for other investments to optimize tax efficiency.
Foreign Income Treatment
The Capstone Biblically Informed U.S. Equity Fund invests in U.S.-listed securities within a Canadian fund structure. Despite the Canadian dollar denomination, underlying investments generate foreign income for tax purposes.
Distributions are treated as foreign income rather than eligible dividends, meaning no dividend tax credit applies. Foreign income is taxed at your full marginal tax rate, similar to interest income.
Your tax slip reports foreign income and may show foreign tax paid if the fund paid withholding taxes to U.S. authorities. You may claim a foreign tax credit for these taxes, reducing your Canadian tax liability. Your tax preparer can determine whether this is appropriate for your situation.
Account Placement Consideration: Since foreign income doesn't receive preferential tax treatment, investments generating this income type may be suitable for registered accounts where income type doesn't affect after-tax return.
Registered Account Treatment
Understanding how registered accounts work helps you apply tax location strategy.
In RRSPs, investment income grows tax-deferred. No tax on distributions or capital gains within the account. Tax is paid upon withdrawal, and all withdrawals are taxed as ordinary income regardless of the original source. This is why fully-taxable income (like interest and foreign dividends) works well here. You're not losing any tax advantage.
In TFSAs, investment income grows tax-free. No tax slips for account income, and withdrawals are not taxable. Canadian dividend tax advantages don't add benefit since all income is already tax-free.
In RESPs, investment income grows tax-deferred. When withdrawn for education, the growth and grant portion is taxed in the student's hands, typically at a lower rate.
In RRIFs and LIFs, investment income continues to grow tax-deferred, similar to an RRSP. A RRIF is the vehicle most Canadians convert their RRSP into at retirement, while a LIF serves the same purpose for locked-in pension funds. Both require minimum annual withdrawals, which are taxed as ordinary income in the year they are received. Because income compounds tax-deferred until withdrawal, fully-taxable income sources such as interest and foreign dividends remain well-suited to these accounts.
In FHSAs (First Home Savings Accounts), investment income grows tax-free. Contributions are tax-deductible, and qualifying withdrawals made for a first home purchase are not taxable. This combination of a deductible contribution and a tax-free qualifying withdrawal makes the FHSA one of the most tax-advantaged registered accounts available to eligible Canadians. For account holders who do not end up purchasing a home, the balance can be transferred to an RRSP or RRIF without tax consequences.
For the registered accounts listed above, you will not receive tax slips because income is not taxable in the year earned, except for mandatory withdrawals from RRIFs and LIFs, which are reported as income in the year received.
Questions for Your Tax Preparer
About Tax Documentation:
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Have I received all necessary Tax slips?
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Do amounts match my account statements?
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Are there specific boxes requiring attention?
About Tax Efficiency:
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How does dividend income affect my overall tax situation?
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Would reallocating between registered and non-registered accounts benefit me?
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Are there tax-loss selling opportunities for future years?
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Should I consider donated appreciated securities to eliminate my capital gains?
About Record Keeping:
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What documentation should I maintain?
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How long should I retain tax slips and statements?
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What information will I need if I sell units?
Essential Record Keeping
Maintaining comprehensive records throughout the year makes tax preparation easier and ensures accurate cost base calculations when you eventually sell units. Proper documentation can prevent overpayment of taxes and simplify conversations with your tax preparer.
Current Year:
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Tax slips
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Account statements showing distributions
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Purchase and sale confirmations
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Records of reinvested distributions
Long-Term:
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Original purchase confirmations showing adjusted cost base
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Records of subsequent purchases and reinvested distributions
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Unit sale confirmations
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Previous years' tax returns
The adjusted cost base matters when selling units. Each reinvested distribution increases your cost base. Accurate records ensure you don't overpay tax.
Most investment platforms provide annual tax reporting packages. Retain these with your tax records.
Tax Considerations for Your 2026 Financial Plan
Account Type Optimization: Consider whether your current account structure aligns with tax location strategy principles. Dividend-paying Canadian investments (e.g., the Capstone Biblically Informed Canadian Equity Fund) may be more tax-efficient in non-registered accounts, while investments generating fully-taxable income (e.g., the Capstone Biblically Informed U.S. Equity Fund) might suit registered accounts.
Contribution Room Planning: If contributing to RRSPs or TFSAs in 2026, understand your contribution room. Tax-deferred growth is particularly valuable for investments generating income taxed at high marginal rates.
Distribution Timing: Funds make distributions at specific times. Knowing when to expect distributions helps you anticipate tax slips, especially if managing income-tested benefits.
Year-End Strategies: Consider tax-loss selling if other investments could offset gains or donating appreciated securities to eliminate capital gains. Understanding tax implications helps you make informed portfolio decisions.
Tax Season Checklist
✓ Confirm receipt of tax slips (arrive in March)
✓ Verify distribution amounts match statements
✓ Gather purchase and sale confirmations
✓ Calculate adjusted cost base for units sold
✓ Organize reinvested distribution records
✓ Prepare questions for tax preparer
✓ Consider account allocation strategy
✓ Update record-keeping system for 2026
Conclusion
Understanding tax location strategy and the tax characteristics of your investments helps you prepare confidently for tax season. Tax efficiency represents one consideration in investment planning, balanced with investment objectives, risk tolerance, time horizon, liquidity needs, and values alignment.
Different investments have different tax characteristics that can be managed through account type selection and tax planning strategies. Professional guidance from financial advisors and tax preparers ensures investment and tax strategies work together to serve your financial goals.
For questions about the Capstone Biblically Informed Canadian and U.S. Equity Funds, visit capstoneassets.ca or call 1.855.437.7103.
Important Legal Disclosures: Commissions, trailing commissions, management fees, and expenses may be associated with investments in mutual funds and exchange-traded funds. Please read the prospectus before investing. Mutual funds and ETFs are not guaranteed; their values change frequently, and past performance may not be repeated. The simplified prospectus, fund facts, and ETF facts are available on SEDAR+ at www.sedarplus.ca or consult with a registered investment dealer or advisor.