Qualified and non-qualified investments

Not all assets are eligible to reap the tax-sheltered benefits of registered accounts. Registered accounts are required to limit their holdings to qualified investments. This is a fancy way of defining investment assets that will not be taxed in registered accounts.

Qualified investments include:

• Cash
• Mutual Funds*
• Guaranteed investment certificates*
• Bonds*
• Securities that are listed on a designated stock exchange in Canada and the US**
• American Depository Receipts

*These investment types are not currently supported on Wealthsimple.
**U.S.-listed securities may still be subject to non-resident withholding tax.

Non-qualified investments, as well as previously qualified investments that become non-qualified, can be subject to tax when acquired within a registered account.

Which types of investments are considered non-qualified?

Non-qualified investments are excluded from the tax-sheltered benefits of a registered account. These include:

• Shares of a private organization
• Assets that do not trade on a designated stock exchange
• Assets that are traded over-the-counter (OTC)*

* Assets that trade OTC are only considered non-qualified if they are not cross-listed on a designated stock exchange.

Wealthsimple's stock trading accounts only support assets that are traded on seven exchanges, all of which are considered designated stock exchanges.

That said, there may be cases where a previously qualified investment becomes non-qualified. This would include the following circumstances:

• Assets that are delisted from a designated exchange and trade over-the-counter (and are not cross-listed on a designated exchange)
• Assets that are delisted from a designated exchange and trade on a non-designated exchange
• Assets that are acquired by a private organization

What do I do if I hold a non-qualified asset in my registered account?

In some circumstances, the CRA will refund the tax payable on non-qualified investments in a registered account. In order to qualify for the refund, the investment must be removed from the account before the end of the calendar year. You can read more about this process in this article published on the CRA website.

There can be tax consequences for holding non-qualified investments in your registered account and moving the non-qualified asset out of your account should be strongly considered.

Will Wealthsimple notify me if one of my registered account positions becomes non-qualified?

We will notify you by email if one of your registered account positions becomes non-qualified.

Prohibited investments

A prohibited investment is an investment where the registered account owner has a close connection to the investment - not a sentimental connection because you have owned the security for a long time, but more of a legal type of connection or relationship.

Prohibited investments are also not eligible to be held in a registered account. You can read more about what the CRA considers to be a prohibited investment in this resource from the CRA website.

If you're looking for a platform that will set you up for long-term success using a passive investing strategy and diversified portfolios, an account managed by Wealthsimple may be for you.

Trading assets within a registered account

In some cases, income earned from trading can be considered to be business income, which is eligible to be taxed by the CRA.

The CRA does not have a limit of an acceptable number of trades that you can make within a registered account, but they reserve the right to audit the activities within your account if it appears that individuals are engaging in inappropriate trading activities (i.e. if it appears that you are attempting to earn your living by trading in your account).

If you have additional questions on this, we recommend speaking to a tax professional.