As we stated in an earlier article on RRSPs (What you need to know to build a productive RRSP) your investments gain doubly in your RRSP. Instead of paying up to 50% of your profit to the government in taxes, you keep 100% of your money working for you.
When you lose, however, you take a double loss. You lose the money you’ve invested as well as the opportunity to have the money grow for years, or even decades, sheltered from taxes.
So don’t use it as a place to find out if you have a talent for stock trading.
Successful investors put only their safest investments in RRSPs. These investments have the greatest potential to increase in value over time and therefore benefit from the RRSP’s continuing protection from taxes.
If these investors indulge in penny stocks, stock options or short-term trading, they do so outside their RRSPs.
If you hold speculative investments like this in an RRSP and they drop, you lose more than the money you invested in them. You also lose the tax-deduction value of a loss outside your RRSP. Outside your RRSP, you can use capital losses to offset taxable capital gains in the current year, the three previous years, or any future year.
If you invest in mutual funds, you have another set of tax concerns. At the end of the year, mutual funds distribute any capital gains they have made during the year, after deducting any capital losses, to their unitholders. So, you may have to pay capital gains taxes on your mutual-fund holdings, even though you haven’t sold.