When drawing funds from a non-registered account, which tax is typically incurred?

When drawing funds from a non-registered account, capital gains tax on profits realized is typically incurred. This is because non-registered accounts do not have the same tax advantages that registered accounts offer. In these accounts, any time an investment is sold for more than its purchase price, the investor realizes a capital gain. Only 50% of the capital gains are included in taxable income, which is an essential consideration for financial planning.

In contrast, interest earned is taxed as ordinary income, and while interest may also be a component of the total return in a non-registered account, the effective tax impact at withdrawal will primarily focus on capital gains realized from the sale of investments that have appreciated in value.

Goods and Services Tax (GST) does not apply to withdrawals from investment accounts, as it is generally a tax levied on goods and services rather than on financial transactions or capital gains. Tax liability is always present when drawing from a non-registered account due to the nature of the investment returns involved, unless there are specific losses that offset gains. This careful consideration of capital gains tax is crucial for both tax planning and investment strategy.