For many medical residents, fellows, and physicians new to practice, opening an RRSP or TFSA is one of the first major financial steps taken after beginning to earn meaningful income.

These accounts offer excellent tax advantages and can become an important foundation for long-term wealth accumulation. However, there is one planning issue that younger physicians often overlook:

Higher-risk investments may not belong inside your registered accounts. 

This may sound counterintuitive at first. After all, if an investment grows substantially inside an RRSP or TFSA, the tax savings can be significant.

But the problem arises when the investment declines in value.

The Hidden Problem with Losses Inside Registered Accounts

Registered plans such as:

• Registered Retirement Savings Plans (“RRSPs”)
• Tax-Free Savings Accounts (“TFSAs”)
• First Home Savings Accounts (“FHSAs”)
• Registered Disability Savings Plans (“RDSPs”)

provide valuable tax sheltering benefits. However, they also come with an important limitation:

Investment losses realized inside registered accounts generally cannot be claimed for income tax purposes.

In practical terms, this means that if speculative investments inside your RRSP or TFSA lose substantial value, those losses are generally unusable from a tax perspective.

The tax system effectively ignores them.

What Is a Capital Gain or Capital Loss?

In simple terms:

A capital gain occurs when you sell an investment or property for more than you paid for it. A capital loss occurs when you sell an investment or property for less than you paid for it.

For example: You purchase shares for $20,000. Several years later, you sell them for $50,000. Your capital gain would be: $30,000

Conversely: If those same shares were sold for $12,000 instead, your capital loss would be: $8,000

In Canada, only a portion of capital gains is taxable. Likewise, only a portion of capital losses is deductible.

Currently, 50% of capital gains are generally included in taxable income. Similarly, only 50% of capital losses become deductible “allowable capital losses.”

Where Higher-Risk Investments May Be Better Held

If you intend to invest in assets carrying a higher degree of volatility or speculation, it may be worth considering holding those investments: personally in a non-registered investment account, or inside an investment account owned by your professional corporation.

Examples might include:

• speculative technology stocks,
• junior mining companies,
• cryptocurrency-related investments,
• concentrated stock positions,
• highly volatile ETFs,
• venture-style investments.

Why?

Because losses realized in non-registered accounts may create capital losses, which can potentially be used strategically to reduce taxes.

Understanding Capital Losses in Canada

Under the Income Tax Act (Canada), allowable capital losses may generally be used:

• against taxable capital gains realized in the current year,
• carried back up to three taxation years, or
• carried forward indefinitely to offset future taxable capital gains.
• This can provide meaningful tax relief when markets decline.

Why Capital Losses Are Restricted to Capital Gains

One important point that investors should understand is that, under the Income Tax Act (Canada), capital losses generally cannot be used to reduce other forms of income such as:

• employment income,
• professional income,
• rental income,
• interest income, or
• pension income.

Instead, allowable capital losses may generally only be applied against taxable capital gains.

This treatment reflects a longstanding policy principle within the Canadian tax system.

Since only a portion of capital gains are taxable, the tax system correspondingly restricts the use of capital losses. In other words, because capital gains receive preferential tax treatment, capital losses receive restricted treatment as well.

For example: only 50% of a capital gain is generally included in taxable income, and correspondingly, only 50% of a capital loss becomes an “allowable capital loss.”

The allowable capital loss may then generally only be applied against taxable capital gains — either: in the current year, carried back up to three taxation years, or carried forward indefinitely for use against future taxable capital gains.

Without this restriction, taxpayers could potentially use investment losses arising from capital property to shelter fully taxable employment or professional income, which would create a mismatch within the tax system.

The result is a form of symmetry: preferentially taxed capital gains are offset only by similarly treated capital losses.

This distinction becomes particularly important for physicians and incorporated professionals who may maintain substantial investment portfolios over time.

Example: Capital Loss Carryback

Consider the following simplified example involving Dr. Smith, an Ontario physician subject to a combined marginal tax rate of approximately 53.53%.

2023 — Capital Gain Realized

Dr. Smith sells investments held in a non-registered account and realizes:

Capital gain: $80,000

Taxable capital gain (50% inclusion rate): $40,000

Because only 50% of capital gains are taxable in Canada, Dr. Smith reports an additional $40,000 of taxable income on his 2023 tax return.

At a marginal tax rate of 53.53%, the approximate tax payable would be:

$40,000 × 53.53% = $21,412

Accordingly, Dr. Smith pays approximately: $21,412 of income tax on the investment gain.

2026 — Market Decline and Capital Loss

Several years later, markets decline significantly. Dr. Smith sells other investments held in a non-registered account and realizes:

Capital loss: $60,000

Allowable capital loss (50%): $30,000

Under Canadian tax rules, allowable capital losses may generally be carried back up to three years and applied against prior taxable capital gains.

Dr. Smith elects to carry the $30,000 allowable capital loss back against the taxable capital gain reported in 2023.

Tax Recovery Generated

The allowable capital loss reduces Dr. Smith’s prior taxable capital gain by: $30,000

At the same 53.53% marginal tax rate, the estimated tax refund generated would be: $30,000 × 53.53% = $16,059

As a result, Dr. Smith may recover approximately: $16,059 of previously paid income tax through the capital loss carryback mechanism.

A Brief Note Regarding ABILs

There is one important exception to the general rule that capital losses may only be applied against capital gains.

Certain losses may qualify as an: Allowable Business Investment Loss (“ABIL”)

An ABIL may arise where a taxpayer lends money to, or invests in shares of, certain qualifying Canadian private corporations carrying on active business in Canada, and the investment later becomes worthless or is disposed of at a loss.

Unlike ordinary allowable capital losses, an ABIL may generally be deducted against other forms of income, including:

• employment income,
• professional income,
• rental income,
• interest income, and
• business income.

This treatment is significantly more favorable.

Example of an ABIL

Suppose Dr. Smith invests: $100,000 into shares of a small Canadian technology startup operated through a qualifying Canadian-controlled private corporation (“CCPC”).

Several years later, the business fails and the shares become worthless.

Dr. Smith may realize a:

Capital loss: $100,000

Allowable business investment loss (50%): $50,000

Unlike ordinary capital losses, the $50,000 ABIL may potentially be deducted against Dr. Smith’s professional income.

Assuming a 53.53% Ontario marginal tax rate, the approximate tax savings could be:

$50,000 × 53.53% = $26,765

This special treatment exists because the tax system historically sought to encourage Canadians to invest in smaller active Canadian businesses by providing enhanced relief if those investments failed.

However, ABIL rules are highly technical, subject to numerous conditions, and professional advice is essential before assuming a loss qualifies.

Why This Planning Point Matters

Had the same investment loss occurred inside an RRSP or TFSA: the capital loss generally would not be deductible, no carryback would be available, and no tax refund could typically be generated.

This is why many advisors encourage investors to think carefully before placing speculative or highly volatile investments inside registered accounts.

A Practical Rule of Thumb

While every situation is different, many physicians may wish to consider the following general framework:

Investments Often Better Suited for Registered Accounts

• diversified portfolios,
• lower-volatility investments,
• retirement-focused investments,
• stable long-term holdings.

Investments Sometimes Better Held Outside Registered Accounts

• speculative investments,
• concentrated positions,
• higher-volatility securities,
• investments with significant downside risk.

The goal is not necessarily to avoid risk altogether, but rather to ensure that if losses do occur, they may still provide future tax value.

Final Thoughts

Registered accounts remain among the most valuable financial planning tools available to Canadian physicians. However, tax efficiency is not simply about sheltering gains — it is also about understanding how losses are treated.

Before placing speculative investments inside an RRSP, TFSA, FHSA, or RDSP, it may be worthwhile to consider whether the inability to claim future losses could become costly later.

Thoughtful asset location planning today can sometimes preserve valuable tax flexibility tomorrow.

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Disclaimer

This article is intended for general information purposes only and should not be relied upon as legal, tax, insurance, accounting, or financial advice. Readers should obtain independent legal, tax, accounting, and insurance advice before implementing any strategy discussed herein. Tucker Professional Corporation accepts no responsibility for reliance placed upon this article without obtaining appropriate professional advice.