For most Canadians, the investing order is clear:

1. Fill your RRSP – Get a tax deduction today and enjoy tax-deferred growth until retirement.

2. Max your TFSA – Grow your money tax-free and withdraw whenever you need it.

But what happens when both are full?

If you’re a high-income earner, the next dollar you invest often goes into a non-registered account. And without the right strategy, that’s where taxes can start eating into your returns.

The Problem With Non-Registered Accounts

Non-registered investments don’t have the same tax protections as your RRSP or TFSA.
That means:

• Interest income (from bonds, GICs, or cash) is fully taxable at your marginal rate.

• Dividends from Canadian companies get a tax credit, but still increase your annual taxable income.

• Foreign dividends (e.g., U.S. stocks) are taxed as regular income in Canada—no dividend tax credit—and often have withholding taxes applied before you even see the money.

Even if you don’t sell your investments, most funds are required to distribute taxable income each year, creating a tax bill whether you need the cash or not.

The Solution: Corporate Class Funds

Corporate class mutual funds are structured differently from traditional mutual funds.
Instead of each fund being a separate trust that must distribute income annually, they are organized under a single corporate umbrella—which opens the door to significant tax efficiency.

Here’s how they help:

Convert Interest Income into Tax-Efficient Capital Gains

Traditional funds pass interest income to you each year, taxed at your full marginal rate.
Corporate class funds can use internal expenses, capital losses, and other strategies to reduce taxable distributions, allowing most growth to be realized as capital gains when you sell.

Capital gains are taxed at only 50% of your marginal rate, so you keep more.

Example at a 50% marginal tax rate:

• $1,000 interest income → you keep $500 after tax.

• $1,000 capital gain → you keep $750 after tax.

That’s a 50% boost in after-tax dollars without changing your risk profile—just by changing the structure.

Reduce the Tax Hit From Foreign Investments

Foreign income can be a tax trap in a non-registered account:

• U.S. dividends have a 15% withholding tax before they reach your account, and you still pay Canadian tax.

• Foreign bond interest is fully taxable in Canada.

Corporate class funds can structure foreign holdings to reduce or defer taxable foreign income, shifting more of your return into capital gains instead of income. That means lower annual tax bills and more efficient compounding.

Benefit From Tax Deferral

With corporate class funds, less money is taxed each year, leaving more in your portfolio to grow.
This is the same principle that makes RRSPs so powerful—when you delay taxes, your investments have more capital to compound over time.

Even if your lifetime tax bill is the same, the timing of when you pay makes a big difference to your final wealth.

Example: Corporate Class vs. Traditional Fund

Let’s compare two investors, Alex and Jordan, each investing $250,000 in a balanced portfolio (50% equities, 50% bonds) for 15 years in a non-registered account.

Assumptions:

• Average return: 6% annually (3% equity growth, 1% dividends, 2% interest)

• Marginal tax rate: 50%

• Corporate class minimizes annual distributions, with most growth taxed as capital gains upon withdrawal

• Traditional fund pays annual taxable income (interest + dividends)

YearCorporate Class Fund (after-tax)Traditional Fund (after-tax)Start$250,000$250,00015 yrs$562,000$485,000Difference+$77,000 in your pocket—

That $77,000 difference isn’t magic—it’s simply the result of reducing annual tax drag and letting more money compound before paying the CRA.

Who Should Consider Corporate Class Funds?

• High-income earners with no RRSP or TFSA room left.

• Investors looking to reduce tax drag in non-registered accounts.

• People investing for the long term who value tax deferral and capital gains treatment.

The Bottom Line

Once your RRSP and TFSA are full, how you invest becomes just as important as what you invest in. Corporate class funds can help you:

• Turn heavily taxed interest income into lightly taxed capital gains.

• Reduce the tax impact of foreign investments.

• Benefit from years of tax deferral for stronger long-term growth.

If you want to keep more of your money compounding—and less going to the CRA—talk to a financial advisor about whether corporate class funds fit your overall wealth strategy.