TFSA vs Cash vs Margin Account: Which Brokerage Account Should You Actually Open?

When you apply at any Canadian brokerage, you're asked to pick an account type before you've bought anything. People pick fast and regret it later. The account is the wrapper — it doesn't change what you can buy, it changes how the government treats what happens inside.

Here's the whole decision in one table:

The TFSA: start here

A Tax-Free Savings Account is the most powerful general-purpose investing account available to a Canadian. Money goes in after tax, grows tax-free, and comes out tax-free — no tax on capital gains, no tax on Canadian dividends, no tax on withdrawal, at any age, for any reason.

The 2026 annual contribution limit is $7,000, and unused room from prior years carries forward. If you were 18 or older in 2009 and have never contributed, cumulative room can exceed $100,000.

The three TFSA rules people break:

1. Withdraw-and-redeposit in the same year. If you take $10,000 out in June and put it back in October of the same calendar year, that redeposit counts as a new contribution unless you have room. Withdrawn amounts are restored to your room on January 1 of the following year, not immediately.
2. US dividend withholding. Canadian dividends are fully tax-free in a TFSA. US dividends are not — a 15% US withholding tax applies inside a TFSA and, unlike in an RRSP, you cannot recover it. This is the strongest argument for holding US dividend-paying assets elsewhere. See asset location.
3. No capital losses. Because gains aren't taxed, losses aren't deductible. A big loss in a TFSA destroys the contribution room permanently — you can't get it back.

The trap almost nobody mentions: the CRA can determine that a TFSA is carrying on a business of trading, in which case the account's income becomes fully taxable as business income. There is no fixed threshold; the CRA looks at frequency, holding periods, knowledge, and the nature of the securities. Very active trading inside a TFSA is a genuine risk. If you want to trade actively, do it in a non-registered or margin account.

The cash (non-registered) account

A cash account is a plain taxable brokerage account. No contribution limit, no withdrawal rules, no government paperwork — and no tax shelter.

You pay tax each year on:

• Capital gains, when you sell at a profit. In Canada, a portion of the gain is included in taxable income at your marginal rate.
• Dividends. Eligible Canadian dividends receive favourable treatment through the dividend tax credit. Foreign dividends are taxed as ordinary income.
• Interest, taxed as ordinary income.

The compensations are real. You can claim capital losses to offset gains, which enables tax-loss harvesting. You can hold unlimited amounts. And you can trade as actively as you like without the CRA business-income concern that hangs over a TFSA.

For most people the rule is simple: fill registered room first, then use a cash account. The exception is if you need the money soon for a purpose where the TFSA room would be wasted, or if you're deliberately holding something in a taxable account for asset-location reasons.

The margin account

A margin account is a taxable account that also lets you borrow from your broker against your holdings, and typically enables short selling and a broader range of options strategies.

Mechanically: you deposit $10,000, and depending on the securities and the broker's rules you may be able to buy considerably more than $10,000 of stock. The difference is a loan, charged at the broker's margin rate.

Why leverage is not a shortcut. If you buy $20,000 of stock with $10,000 of your own money and the stock falls 25%, you've lost $5,000 — 50% of your capital. Fall far enough and you get a margin call: the broker demands more cash or sells your positions at their choosing, usually at the worst possible moment. You don't get to wait it out.

Interest is charged continuously, in a world where borrowing costs have risen materially. Margin rates track short-term interest rates, and those are not where they were in 2021.

Legitimate uses exist: short-term bridging while a transfer settles, currency-related strategies, options strategies that require margin approval, and short selling. In some circumstances, interest on money borrowed to earn investment income may be tax-deductible in a non-registered context — but that's a question for a tax professional, not a blog.

Illegitimate use: borrowing because you're impatient. Leverage doesn't make a good strategy better. It makes every strategy — good or bad — faster.

Our full explainer: what is a margin account and how borrowing to invest works.

The order most Canadians should follow

1. Emergency fund in cash or a high-interest savings account. Not invested.
2. TFSA, up to your available room.
3. RRSP, especially if you're a higher earner — the deduction is worth more the higher your marginal rate. See TFSA vs RRSP.
4. FHSA, if you're buying a first home — it's often the best of both.
5. Cash / non-registered, for anything beyond that.
6. Margin, only if a specific strategy requires it.

Most people never need step six.

Frequently asked questions