3 Simple Tax Mistakes Canadian Investors Make

When investing in Canada, many focus on picking the right stocks or funds but tax efficiency is often the silent drag on portfolio returns. Even small missteps can cost you thousands over time. Below are three surprisingly common tax mistakes Canadian investors make, and how to avoid them.

Mistake 1: Holding U.S. Dividend Stocks in a TFSA (and losing withholding tax)

One of the most under-appreciated pitfalls is the way U.S. dividends are taxed when held in a TFSA (Tax-Free Savings Account). Even though the TFSA shelters Canadian taxes on capital gains and dividends, it does not shield you from U.S. withholding tax on U.S. dividends. Because of treaty rules, that 15 % foreign withholding cannot be recovered via a foreign tax credit when the income stays within a TFSA.

In contrast, U.S. dividends held in an RRSP are exempt from U.S. withholding under the Canada–U.S. tax treaty.

“One of the most common oversights … is holding U.S. stocks or ETFs in a TFSA. … You can’t claim a foreign tax credit to recover that amount in a TFSA, so the money is just gone.” Yahoo Finance

How to avoid

• If you invest in U.S. dividend-paying stocks or ETFs, hold them in an RRSP rather than a TFSA when possible.
• Within a TFSA, favor Canadian equities or U.S. securities that don’t pay dividends (or pay minimal dividends) to avoid the withholding loss.
• Be intentional about which accounts hold which assets — this “asset location” decision is a key part of tax-efficient portfolio design.

Mistake 2: Putting High-Tax Income Investments (e.g. REITs) in Non-Registered Accounts

Real Estate Investment Trusts (REITs) generate distributions that tend to include a mix of ordinary income, capital gains, and return of capital. The “ordinary income” portion is taxed at your full marginal rate when held in a non-registered (taxable) account, which can be far higher than the tax on dividends or capital gains.

As noted in a recent analysis:

“Holding REITs in a taxable account … the regular income portion taxed at your full marginal rate. That can be much higher than the tax on eligible Canadian dividends or capital gains.” Yahoo Finance

How to avoid

• Hold REITs in a registered account (TFSA or RRSP) so that the annual taxable distribution doesn’t erode your returns.
• In non-registered accounts, favor securities taxed more favorably (e.g. eligible Canadian dividends, capital gains).
• Monitor how your investments are taxed and shift them to more optimal locations when possible (while being mindful of trading costs and other constraints).

Mistake 3: Making Speculative / Loss-Prone Investments Inside Registered Accounts

Many investors like to take riskier, speculative bets (e.g. very small caps or penny stocks). But doing so inside registered accounts like TFSAs or RRSPs can backfire from a tax perspective:

• If these speculative investments lose value and become worthless, you cannot claim the capital loss to offset other gains, losses in registered accounts are not tax-deductible or carry-forwardable.
• As The Motley Fool Canada warns:

“If a speculative pick goes to zero in a TFSA or RRSP, you can’t claim a capital loss … That loss room is just gone.” Yahoo Finance

How to avoid

• Reserve high-risk or speculative investments for taxable accounts, where losses can at least be used to offset gains.
• Use your registered accounts (TFSA, RRSP) for core holdings you expect to hold long term and with lower volatility.
• Maintain a balanced approach: don’t over-expose registered accounts to downside risk where you lose all tax benefit of loss recognition.

Bonus Mistakes to Watch Out For

While the three above are among the most impactful for many investors, here are a couple more to keep in mind:

• Failing to claim capital losses — if you sell an investment at a loss in a taxable account, you can use that loss to offset capital gains. Many investors neglect to make that claim, missing out on tax relief.
• Underutilizing registered accounts — some investors don’t fully max out or strategically use TFSAs, RRSPs, or other vehicles, foregoing tax advantages.

A small drag from taxes every year compounds over decades. While selecting the right securities is important, keeping more of your returns is equally critical. Smart “account location” decisions and tax awareness can improve net returns meaningfully without increasing portfolio risk.

How Avantis Helps (and Why It Matters Here)

Investors can get smarter about tax effects when they have full visibility into corporate disclosures, dividend policies, financial statements, and changes in corporate structure. That’s where a platform like Avantis can be useful. Avantis’s tools for disclosure research and cross-jurisdictional filing access help investors detect shifts in dividend policies, check companies’ tax footnotes, and monitor structural changes that might affect future tax outcomes.

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