Asset Location – Think Again

What Is Asset Location?

You might be familiar with asset allocation, which answers the question “how much of my portfolio is in stocks vs. bonds. vs. real estate vs. commodities vs. cryptocurrencies?”.

Asset location answers the question “which accounts do I hold them in and why?”.

The goal of asset location is to increase your total after-tax portfolio return. This is theoretically possible for two reasons:

  1. Different types of investment income are taxed differently
  2. Separate account types (RRSPs, TFSAs, etc.) have different tax rules

If we could optimize things such that the right account type earns the right type of investment income, we should be able to boost our after-tax returns – right?

Well, I’m here to tell you that despite this being possible, you should think again.

To understand why, read on.


Types Of Investment Income

There are numerous tax treatments for investment income in Canada. When it comes to your portfolio, these are the most common:

  1. Interest, rental income, and royalties
  2. Eligible Canadian dividends
  3. Foreign dividends
  4. Capital gains and losses

Each of these is taxed differently. Assuming you hold investments in a non-registered (taxable) account:

  1. Interest, rents, and royalties 
    1. Taxed just like employment income. Every dollar net of expenses is added to your other income and fully taxed.
  1. Eligible Canadian Dividends
    1. Grossed-up by 38% first, and then federal and provincial tax credits are applied. The result is lower tax than on interest, rent, foreign dividends, and royalties.
  1. Foreign dividends
    1. Taxed like interest, however foreign withholding tax may apply before you receive the dividend. Depending on the account type and fund structure, this amount may be recoverable.
  1. Capital gains and losses
    1. Only half of your capital gains are taxed. The other half is tax free. Likewise, only half of your capital losses can be used to offset the taxable half of your capital gains.


Depending on your tax bracket, either capital gains or eligible dividends will be most tax efficient. The other types are most heavily taxed.


Tax Treatment Of Different Investment Accounts

The other half of the asset location equation is the tax treatment of various Canadian investment accounts:

  1. Non-registered (taxable) accounts
  2. RRSPs, Locked-in RRSPs (LIRAs), RRIFs, and Life Income Funds (LIFs)
  3. TFSAs
  4. Corporate accounts and holding companies
  5. Non-registered (taxable) accounts
    • There’s no tax advantage to these accounts. Sometimes called a cash account, all your investment income is taxed as described in the previous section.
  1. RRSPs, LIRAs, RRIFs, LIFs
    • No tax is applied to investment income inside these accounts. All returns are tax-free (not tax-deferred, but that’s a subject for a different post). When you withdraw funds from these accounts, ideally in retirement, the full amount of the withdrawal is taxed as income.
  1. TFSAs
    • Like RRSPs, investment returns are tax free. There is no tax on withdrawal. Foreign withholding tax from US and international sources is not recoverable if levied in a TFSA.
  1. Corporate Accounts and Holding Companies
    • Here’s where things get ugly. A full discussion of corporate investment taxation could be a separate 10,000 word post, so I’ll only cover the basics. 


Passive corporate income, like that earned from investment portfolios or real estate, is not subject to marginal tax rates – a flat tax is applied that is close to the top marginal tax rate in each province. Part of the taxes paid are a withholding tax, called ‘refundable tax’. This applies to deter people from opening holding companies for the express purpose of investing. 

When a shareholder receives a dividend from the corporation, that tax is refunded to the corporation. This mechanism is further complicated by the fact that the refundable tax amount is calculated differently for interest income and capital gains than it is for eligible dividends, which is different again from foreign dividends. Depending on the province, there is an advantage or disadvantage to investing funds corporately vs. personally.


What Does The Conventional Wisdom Say About Asset Location?

Since capital gains and Canadian dividends are most tax-favoured, it would make sense to hold those in taxable accounts and shelter the other more inefficient sources inside an RRSP or TFSA. This is commonly suggested by advisors and financial writers, and it does have some merit. 

How much merit?

Various academic papers on the topic estimate the after-tax benefit of an optimal portfolio location strategy at between 0.20% and 0.30% per year. Not peanuts, but not likely the difference between meeting your retirement goals or not.


Why You Should Ignore The Conventional Wisdom – Mostly

One such paper is “Asset Location & Uncertainty” by Ben Felix, Portfolio Manager at PWL Capital. Using a Monte Carlo simulation, he looked at how an optimal asset location strategy might perform over 1,000 different trials. 

The result? 

Under the right conditions it works 80% of the time. That sounds good, but the flip side is that there’s a decent chance that you’ll actually hurt your after-tax returns through asset location.

He also found:

  • The higher the proportion of assets in RRSPs vs. taxable accounts, the better it works
  • At lower tax rates, the expected benefit fell to 0.14% per year
  • When asset class performance differs from projected returns, the benefit was just 0.07%, and only showed up 58% of the time

That last point is important. Since he ran 1,000 trials, it’s not conclusive – there are infinite possibilities of actual returns vs. projected returns. But we know we can’t predict asset class performance with any certainty. That means the benefit of asset location is unknowable in advance, but there’s a good chance it will detract from your returns. 

He does reference a 2004 Journal of Finance paper by Dammon, Spatt, and Zhang that shows you should hold your highest yielding investments in your tax-sheltered accounts. This may or may not be bonds, however. In low-interest rate environments, dividend yields on stocks can be higher than bond yields. But since this relationship changes over time, you would have to rebalance your asset location when yields change.

But it gets even more interesting.

Ben did a follow up paper in 2019 titled “Optimal Asset Location”. Here he argues convincingly that any benefit derived from asset location is not from allocating different types of investment income across different account types. 

The benefit comes from the fact that your portfolio is riskier than you think, and the added risk delivers a reward.

Take the example of a 60/40 investor:

  • 60% stocks, and 40% bonds
  • $600k in their taxable account, all stocks
  • $400k in their RRSP, all bonds

Assuming a 50% marginal tax rate, the government owns half of their RRSP. 

When you account for the after-tax proportion of stocks vs. bonds, this investor is actually holding a 75% equity and 25% fixed income portfolio. $600k in stocks, but only $200k in bonds.

That added 0.20-0.30% return we talked about earlier? It comes from holding more stocks than you wanted, which should deliver higher returns than bonds.

To prove it, he modeled a scenario where the same investor holds a 75/25 portfolio in both the taxable account and the RRSP. Since the taxes on the RRSP reduce each asset class proportionally, on an after-tax basis they would still hold a 75/25 portfolio.

The result?

A higher after-tax return than the 60/40 investor. 

In essence the asset location strategy tricks you into holding a more aggressive portfolio than you intended. 

There are several other reasons that make it problematic:

  1. You can’t predict your tax rates in advance. Tax rates change, and while we can project your future income, we can’t know for sure. That uncertainty makes it more of a gamble.
  2. Rebalancing your portfolio can present challenges if all your fixed income is in your RRSP. Assuming there’s a difference in value between your taxable account and your tax-sheltered accounts, there will come a point where your asset allocation is out of balance, and to rebalance you’ll have to hold some fixed income in your taxable account. Doing so would reduce the benefit of the strategy.
  3. The added portfolio complexity can introduce behavioural mistakes. The more you analyze your portfolio, the more decisions you are required to make. Every time you make a decision you introduce the probability of making a mistake – deviating from your asset allocation, chasing returns, market timing, etc.
  4. If you need to make a large or unexpected withdrawal from your portfolio, you may have to trigger a capital gain in your taxable account. Having bonds in your account gives you a source of liquidity with a lower tax impact.


A Note On Holding Companies

None of the studies referenced holding companies, which are taxed in a different way. 

Interest income in a holding company, when flowed through to a shareholder, is taxed at a higher rate than if held personally. Keeping interest income out of your corporate investment account is more compelling than compared to a personal non-registered account, but still suffers the issues noted above. Additionally, for those with successful businesses, or high-earning physicians and professionals, your holding company will dwarf your RRSP over time. This makes asset location more challenging, and less beneficial. 


Corporate Class Bonds

There is a way to keep your asset mix balanced across all your accounts, while ignoring the asset location strategy. 

Corporate class funds generally do not pay out interest, but instead pay out capital gains. There are corporate class fixed-income funds, though they are rare. Fees are also higher, though only marginally so. 

By using these in your taxable account, you can maintain your desired asset mix across each account without incurring taxable interest income.



Before spending any mental energy on asset location, there are other areas you should have dialed in: 

  1. Your asset allocation determines most of your risk and returns. Make sure your asset allocation is aligned with your risk tolerance, time horizon, and goals.


  1. Be mindful of fees. Fees on average reduce your portfolio performance, so ensure you own mutual funds and ETFs that give you the exposure you want at the lowest cost. 


  1. Check yourself. Bad investor behaviour is the biggest detractor from investment returns. Tinkering with your portfolio, chasing returns, market timing, and other biases can easily get in the way of capturing long-term returns. Ensure you have a handle on emotional decision making when it comes to your portfolio.

If you’ve done all the above and still aren’t satisfied, you can look to asset location as the last frontier of enhancing your returns. Just know that your success will largely be determined by luck, and you won’t know if you were successful until you look back in time and do the math. 

As for me – I won’t bother.




The information contained herein has been provided for information purposes only.  The information has been drawn from sources believed to be reliable.  The information does not provide financial, legal, tax or investment advice.  Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance.  This does not constitute a recommendation or solicitation to buy or sell securities of any kind.  Wellington-Altus Private Wealth Inc. (WAPW) does not guarantee the accuracy or completeness of the information contained herein, nor does WAPW assume any liability for any loss that may result from the reliance by any person upon any such information or opinions.  Before acting on any of the above, please contact your financial advisor.  WAPW is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.  



The opinions contained herein are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Wellington-Altus Private Wealth. Assumptions, opinions and information constitute the author’s judgement as of the date this material and subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. All third party products and services referred to or advertised in this presentation are sold by the company or organization named. While these products or services may serve as valuable aids to the independent investor, WAPW does not specifically endorse any of these products or services. The third party products and services referred to, or advertised in this presentation, are available as a convenience to its customers only, and WAPW is not liable for any claims, losses or damages however arising out of any purchase or use of third party products or services. All insurance products and services are offered by life licensed advisors of Wellington-Altus. Wellington-Altus Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. All trademarks are the property of their respective owners.

Amy Sweeney



Amy was born and raised in Squamish, is David’s oldest daughter and now the newest member of the Sweeney Bride team. Many may recognize her as she has worked periodically for the team for over 20 years. For the past five years, she has gained administrative experience and more running her own business as a Kinesiologist after completing a bachelor’s degree in Kinesiology at the University of British Columbia in 2016. Now, Amy is officially ready to join the finance industry. Currently residing in North Vancouver, Amy spends all her “free” time raising Dave’s two wonderful grandchildren.
Liam Hill


Associate Investment Advisor

Originally from Sydney, Australia, Liam moved to the Sea to Sky region in 2013, leaving the beaches behind to embrace the mountains. He hasn’t looked back since and enjoys exploring the wilderness by both land and sea.

Liam’s unique strength lies in his capacity to adapt and fine-tune strategies to match the ever-changing financial world. He’s a passionate advocate for adaptability and flexibility, believing these traits are crucial for securing financial well-being.

Liam holds the Canadian Securities Course qualification and is currently pursuing the Chartered Investment Manager (CIM) designation.

He shares his industry knowledge and business skills to empower individuals, families, and businesses on their path to financial success.

Liam is committed to educating our clients about the financial services industry and helping them make the most of available resources to achieve prosperity.


Administrative Assistant

Sharon worked for Sweeney Bride from 2014 to 2016 and recently rejoined the team as an Administrative Assistant in 2021. She has years of administrative experience in a variety of industries including working in legal and accounting firms. She enjoys being detailed, organized and efficient. When not hard at work, she enjoys exploring the great outdoors with her dogs, playing co-operative strategy board games and relaxing while sipping a nice Craft beer.

Carrie Freitag


Administrative Assistant

Carrie is the newest member of our team and is our Administrative Assistant. She has previous industry and administrative experience and her fascination with the finance industry is rapidly growing. Carrie moved to BC in 1994 from Ontario and never looked back. While not working she loves hanging out with her two kids, awesome cat Leo, and enjoys a competitive game of 21, and her gardens.

Katie Norton



Katie is a Business Administration graduate who joined the Sweeney Bride team in 2016. She takes care of on-boarding as well as managing account administration for our existing clients. She works hard to ensure the clients feel supported throughout the on-boarding process and is always available to answer questions.

A BC resident since 1997, Katie and her husband moved to Squamish to raise their two girls. They enjoy all of the outdoor activities and natural beauty that Squamish has to offer.

Liz Woodsworth


Office Manager

Liz joined the Sweeney Bride team in 2015 as office manager. She is the gatekeeper in the office and is the face that greets you as you come through the door. If she can’t help you, she will ensure you speak with someone who can. Liz is a long-time Squamish local; when not in the office she spends her days soaking up all that this town has to offer while chasing her two active boys. Liz brings her valuable organizational skills and enthusiastic attitude to the team. 

Janet Bride


CFP®, CIM® | Senior Wealth Advisor

Janet Bride is a Senior Wealth Advisor at Wellington-Altus Private Wealth and co-founder of the Sweeney Bride Strategic Wealth Advisory team.

With over 15 years’ experience in the Industry Janet holds the Chartered Investment Manager (CIM®), CERTIFIED FINANCIAL PLANNER®, and Elder Planning Counselor (EPC) designations and is also Insurance licensed.

Janet grew up in Ontario and moved out to beautiful British Columbia in 1995 with her husband, Paul, who is an adventure travel photographer. Her passion is to travel the world. Always interested in exploring different cultures and landscapes, she is grateful to have traveled to over 50 countries across 6 continents. She also enjoys continuous learning, spontaneous adventures with family and friends, and an active lifestyle in the Sea to Sky. Janet is proud to be a Big Brothers Big Sisters Alumni member since 2004.

She is highly motivated by helping people reach their financial dreams by creating comprehensive financial plans for individuals & families. While using a holistic approach to wealth management, she specializes in tax strategies and her goal is to encourage savings and help build our client’s wealth for a healthy and prosperous future.



CFP®, CIM® | Senior Wealth Advisor

Dave Sweeney is a Senior Wealth Advisor at Wellington-Altus Private Wealth and co-founder of the Sweeney Bride Strategic Wealth Advisory team.

With over 31 years’ experience in the Industry Dave holds the Chartered Investment Manager (CIM®), CERTIFIED FINANCIAL PLANNER®, and Elder Planning Counselor (EPC) designations and is also Insurance licensed.

Dave has lived in Squamish for most of his life. Married to his wife Donna, since 1987, they proudly have 3 lovely daughters, Amy, Danielle and Jamie. With his time in Squamish, it has allowed him an opportunity to become involved in many valuable groups.

Dave is a retired Captain of Squamish Fire Rescue after 35 years of service. Another passion was sports and he has been a coach for Squamish Youth Soccer Association where he dedicated 10 years to coaching girls Rep teams. Additionally, he is a former member and Treasurer of the Sea to Sky Community Services Board. Dave is a frequent contributor to Mountain FM’s Mountain Monitor, providing general advice and financial commentary.

Dave continues his volunteer work as Treasurer for both the Squamish Hospital Foundation and the Squamish Downtown Business Improvement Association. He is also a sitting Board member of the Squamish Community Foundation.

Professionally, Dave started his Financial Planning practice in 1994. After living through both his parents’ demise and witnessing what a lack of understanding they had, he realized what sound planning techniques could do to ensure that an untimely death did not destroy one’s lifetime work. For over 20 years, he has made it his passion to assist others in not facing the same plight.