Know the Difference Between Wealthsimple TFSA And Wealthsimple Personal Accounts

Wealthsimple Inc was founded in 2014 and is currently based in Toronto, Canada.

It is a financial institution intended to be a one-stop shop for investors providing various products and services such as a trading app, trading accounts, and portfolio management services.

Their products include their flagship Wealthsimple Trade (Trading Platform), Wealthsimple Investment (Robo Advisory), Wealthsimple Cash, and Wealthsimple Tax.

The Wealthsimple platform also provides investors with several account options to drive their investments.

Disclaimer:

Equity investments are subject to market risks and may not be suitable for all investors. If you have any doubts as to the merits of an investment, you should seek advice from an independent financial advisor. So please invest at your own risk.

These include non-registered personal investment accounts, registered retirement savings plan, tax-free savings accounts, RESPs, RRIFs, LIRA, and corporate accounts.

We will analyze two of their most popular account types. Their tax-free savings account and personal investment account are necessary when using their Wealthsimple Trade and Wealthsimple Invest Services.

We will look into the key features of each, where they differ and where they align, and consequently, which account is best for a particular investment need.

Wealthsimple Personal Account

It is one of the easiest accounts to open on Wealthsimple and is very straightforward to operate since they aren’t as regulated as registered accounts.

This account can be used to trade stocks and exchange-traded funds, bonds, mutual funds, and GICs.

You can use this account can also be used to trade on Wealthsimple Trade or have your account value invested for you in a Wealthsimple invest account for which you pay a management fee.

There is no withdrawal or deposit limit, you do not need to inform the government or financial institutions why you are withdrawing or depositing funds, nor is there a limitation on how many securities you can trade using the account.

But despite these advantages, a non-registered account comes at a cost, such as having no deferral or tax-saving advantages. The incomes generated by a personal account are deemed taxable income.

With zero commissions and virtually no restrictions on the number of trades, a personal investment account is a great way to trade and grow your investment portfolio. The personal account can be used to trade stocks and ETFs through the Wealthsimple trade app.

Despite this, personal accounts are subject to a 1.5 % currency conversion fee by the Wealthsimple Trade account. This is primarily on US stock trades.

Depending on how a personal account is used. Its tax liabilities will vary, and so will its tax savings status with the government.

For example, capital gains are deemed taxable income and declared during tax season. 50% of capital gains count as taxable.

If the account is used for active trading, profits (once realized) are taxed as business income. Business income fully counts as taxable in Canada, much like employment income.

For tax reasons, losses are deductible and can be offset using gains in your investment portfolio.

The Canadian Regulatory Authority(CRA) usually monitors personal accounts activity to determine whether an account is liable for Capital gains or Business Income Tax liabilities.

Wealthsimple Tax-Free Savings Account

This is a registered savings account one can open on Wealthsimple.

This account can also be used to trade on Wealthsimple Trade or have your account value invested for you in a Wealthsimple Invest account for which you pay a management fee.

This account offers tax-free investment returns for investors, and you can use it to hold securities, cash, and fixed-income assets.

You contribute to your TFSA account using after-tax dollars, which then translates to tax exemption for incomes generated from investments in your TFSA account.

 

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Regulation

As registered accounts, they are regulated by the Canadian government and subject to certain rules and operating procedures. Such as:

Contribution Limits

Your TFSA account is subject to a contribution limit. This limit is set and updated every year by the government.

Surpassing the limit results in penalization and the potential revocation of your tax advantages on your account. There is a monthly penalty of 1% of the surplus contribution until the excess is withdrawn from the account.

Money withdrawn from your TFSA account can not be re-contributed within the same year since it affects your contribution limit. You must wait until the next year to contribute. The withdrawn amount is added to the following year’s contribution room.

Should an investor choose not to contribute to their TFSA account, the contribution room is rolled over to the next year. Accumulating over time when not used.

An Investor can have multiple TFSA accounts, but the contribution limit must not be exceeded by the total deposit money.

Investment Rules

A TFSA account cannot be used for day trading, otherwise, it loses its tax-saving exemption, then becomes considered a business, and is taxed as a business instead.

The Canadian Regulatory Authority(CRA) usually monitors TFSA accounts to determine whether investors abide by these rules. They monitor trade frequency, trading times, and buy and hold strategies.

Gains or Loses caused by market fluctuations do not affect your contribution room.

Dividends from foreign investments do incur a withholding tax.

Foreign Currency funds can be used to contribute to your TFSA account but they will be converted to CAD and shouldn’t exceed your contribution room after the conversion.

 

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Eligibility

Both Canadians and non-Canadians are eligible for TFSAs as long as you are 18 years and over with a SIN number. This can be particularly useful for non-Canadians when trying to avoid income tax payments.

It is important to note that non-Canadians will be taxed 1% monthly as long as the contribution remains in the account.

Regulation

Wealthsimple Inc is a member of the CIPF (Canadian investor protection fund) ,this means investments are protected against broker insolvency up to $1 million.

It is also regulated by the IIROC (Investment Industry Regulatory Organization of Canada).

Summary

Each account has its pros and cons and the choice an investor will make on which suits them best will depend on their investment strategy and goals.

The personal account lends itself to the active investor, allowing for more flexibility at the expense of higher tax liabilities. The tax free savings account on the other hand offers more incentive and preservation of profits at the expense of maneuverability.

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