Author Topic: Tax Efficiency Across RRSP, TFSA and Taxable Accounts  (Read 6361 times)

Prairie Moustache

  • Stubble
  • **
  • Posts: 198
  • Location: Somewhere Flat
Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« on: January 07, 2019, 01:56:44 PM »
Hi Fellow Canadians,

I was wondering if someone could point me in the direction of a past post/blog post that outlines simply the best way to allocate your holdings across your TFSA, RRSP and taxable accounts. I've reached the point now where I can no longer ignore the tax implications I believe!

I'm currently holding VGRO in my taxable Questrade account and buying biweekly when I get paid. Some reading I've done would suggest this is not ideal, especially for calculating your adjusted cost basis. Does anyone hold the Horizons swap ETF's on here?

Thanks in advance!

Lews Therin

  • Magnum Stache
  • ******
  • Posts: 3033
  • Age: 30
  • Location: Gatineau
  • Used to be Canadian Ben
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #1 on: January 07, 2019, 02:23:14 PM »

Prairie Moustache

  • Stubble
  • **
  • Posts: 198
  • Location: Somewhere Flat
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #2 on: January 07, 2019, 03:00:10 PM »
This is a good one as well that I'm going to read through when I'm not procrastinating at work:

https://forum.mrmoneymustache.com/canada-tax-discussion/finally-reaching-the-non-tax-sheltered-account-stage/

Lews Therin

  • Magnum Stache
  • ******
  • Posts: 3033
  • Age: 30
  • Location: Gatineau
  • Used to be Canadian Ben
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #3 on: January 07, 2019, 06:41:40 PM »
If you want, you can PM me and I can give you your situations's best choices, or you could put up a case study or in your journal)

Rrsp: least effective (bonds, gics , US or other tax treaty countries) ; tfsa tax ineffective + highest expected growth
Taxable: swap based if you have high income, can dividend if low income, random bets for capital loss/gain purposes.

Edit: due to lack of sobriety, lots of spelling mistakes, but info is still valid :D. Yes. I recommend investments while non-sober. Thats the kind of person I am.
« Last Edit: January 07, 2019, 06:43:14 PM by Lews Therin »

Prairie Moustache

  • Stubble
  • **
  • Posts: 198
  • Location: Somewhere Flat
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #4 on: January 08, 2019, 12:16:55 PM »
@Lews Therin Thanks for the offer, I'll accept booze fueled investment advice any day. I'll put up a bit of a case study in my journal tonight!

Lews Therin

  • Magnum Stache
  • ******
  • Posts: 3033
  • Age: 30
  • Location: Gatineau
  • Used to be Canadian Ben
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #5 on: January 08, 2019, 05:12:43 PM »
Np. Tag me in it.

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6679
  • Location: BC
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #6 on: February 16, 2019, 08:04:45 PM »
I have seen very well reasoned and analyzed accounts justifying differing views on what to put into which account.

It depends on specific situations -- especially if you have maxed out your TFSA, rrsp and are starting to build a non-taxable account.

For example, TFSA - high growth?   Maybe, maybe not.   What if high growth comes with potential losses (stock picking where you expect 60% of your choices to lose a bit, and 20% to explode and 20% to gain a bit?)   In that case, you would lose the capital loss to offset capital gain.

One basic rule that I have found -- USA indexes should be held in US dollars, on US exchanges, (for lowest expenses) and in the RRSP to get the foreign tax credit.

daverobev

  • Magnum Stache
  • ******
  • Posts: 3443
  • Location: France
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #7 on: February 17, 2019, 04:15:47 AM »
One basic rule that I have found -- USA indexes should be held in US dollars, on US exchanges, (for lowest expenses) and in the RRSP to get the foreign tax credit.

US domiciled funds (which includes things like VXUS, which is global ex-US, not just US company ETFs) should be held in an RRSP if possible because they do not lose the 15% foreign withholding tax on dividends.

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1346
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #8 on: February 17, 2019, 01:41:35 PM »
One basic rule that I have found -- USA indexes should be held in US dollars, on US exchanges, (for lowest expenses) and in the RRSP to get the foreign tax credit.

US domiciled funds (which includes things like VXUS, which is global ex-US, not just US company ETFs) should be held in an RRSP if possible because they do not lose the 15% foreign withholding tax on dividends.

or next in a taxable account, where the foreign tax credit can be claimed.

https://canadiancouchpotato.com/2016/07/18/how-foreign-withholding-taxes-affect-returns/

https://canadiancouchpotato.com/2015/01/30/the-wrong-way-to-think-about-withholding-taxes/
« Last Edit: February 17, 2019, 01:43:53 PM by Heckler »

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1346
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #9 on: February 17, 2019, 01:48:16 PM »
https://canadiancouchpotato.com/2010/03/05/put-your-assets-in-their-place/

kind of old, but I still follow his guidance, but haven't started a taxable account yet.

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6679
  • Location: BC
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #10 on: February 18, 2019, 11:28:54 PM »
One basic rule that I have found -- USA indexes should be held in US dollars, on US exchanges, (for lowest expenses) and in the RRSP to get the foreign tax credit.

US domiciled funds (which includes things like VXUS, which is global ex-US, not just US company ETFs) should be held in an RRSP if possible because they do not lose the 15% foreign withholding tax on dividends.

or next in a taxable account, where the foreign tax credit can be claimed.

https://canadiancouchpotato.com/2016/07/18/how-foreign-withholding-taxes-affect-returns/

https://canadiancouchpotato.com/2015/01/30/the-wrong-way-to-think-about-withholding-taxes/
Ah! but my non registered is committed to CDN Eligible Dividends as I have less than $40k in income each year... So the US indexes must remain in the RRSP.

daverobev

  • Magnum Stache
  • ******
  • Posts: 3443
  • Location: France
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #11 on: February 19, 2019, 03:18:46 AM »
One basic rule that I have found -- USA indexes should be held in US dollars, on US exchanges, (for lowest expenses) and in the RRSP to get the foreign tax credit.

US domiciled funds (which includes things like VXUS, which is global ex-US, not just US company ETFs) should be held in an RRSP if possible because they do not lose the 15% foreign withholding tax on dividends.

or next in a taxable account, where the foreign tax credit can be claimed.

https://canadiancouchpotato.com/2016/07/18/how-foreign-withholding-taxes-affect-returns/

https://canadiancouchpotato.com/2015/01/30/the-wrong-way-to-think-about-withholding-taxes/
Ah! but my non registered is committed to CDN Eligible Dividends as I have less than $40k in income each year... So the US indexes must remain in the RRSP.
Better to not be taxed than being able to claim it against other taxable income.

Even with Canadian Eligible stuff, usually it is better to hold registered because of cap gains (but of course this can be managed).

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6679
  • Location: BC
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #12 on: February 21, 2019, 11:04:27 PM »
But if registered is full......  something needs to go into the unregistered, so it may as well be the Cdn Dividends when my income is low.

daverobev

  • Magnum Stache
  • ******
  • Posts: 3443
  • Location: France
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #13 on: February 22, 2019, 01:58:03 AM »
But if registered is full......  something needs to go into the unregistered, so it may as well be the Cdn Dividends when my income is low.

Yup, the first thing to get kicked out of tax sheltered accounts is anything that gives Eligible dividends.

Prairie Moustache

  • Stubble
  • **
  • Posts: 198
  • Location: Somewhere Flat
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #14 on: February 22, 2019, 07:46:08 AM »
I'm starting to run into the problem where I don't have enough tax sheltered room across my accounts. In order to achieve my target allocation I'll have to sell most of my Canadian funds and put them into to my taxable account. Good problem to have I guess.

Lews Therin

  • Magnum Stache
  • ******
  • Posts: 3033
  • Age: 30
  • Location: Gatineau
  • Used to be Canadian Ben
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #15 on: February 22, 2019, 07:53:19 AM »
Prairie moustache you have a high income right? 60k+?

Google Swap based ETFs   (The rich moose has a financial blog and talks about them. ETFs that buy more of itself instead of paying out dividends, so you only have capital gains (so you don`t pay anything during your employment years till you sell them in retirement)

Prairie Moustache

  • Stubble
  • **
  • Posts: 198
  • Location: Somewhere Flat
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #16 on: February 22, 2019, 08:33:28 AM »
I do, yes. I started buying HBB.TO and HXT.TO already! I know they also offer US and Intl exposure in swap based products (HXS, HXDM) but the management fees and swap fees for those two funds are relatively high (0.4, 0.55). I'd need to take a better look at what kind of tax burden I'd be looking at. I'm still a novice at doing those types of calculations.

Lews Therin

  • Magnum Stache
  • ******
  • Posts: 3033
  • Age: 30
  • Location: Gatineau
  • Used to be Canadian Ben
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #17 on: February 22, 2019, 09:15:34 AM »
Fund dividend: X tax rate
Funds X management fee.

Whichever is higher loses. (also remember that your salary will continue to increase, as will the amount of dividens you receive)

If you have a house, it might be time to look into the Smith maneuver. (turning your mortgage into a tax deductible investment loan)

Prairie Moustache

  • Stubble
  • **
  • Posts: 198
  • Location: Somewhere Flat
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #18 on: February 22, 2019, 09:40:02 AM »
No mortgage here, my rent is way too good to justify it at this point - $575 including water, power, heat and internet. Will definitely be executing the Smith Manoeuvre when I get there.

RichMoose

  • Pencil Stache
  • ****
  • Posts: 971
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #19 on: February 22, 2019, 02:50:33 PM »
I do, yes. I started buying HBB.TO and HXT.TO already! I know they also offer US and Intl exposure in swap based products (HXS, HXDM) but the management fees and swap fees for those two funds are relatively high (0.4, 0.55). I'd need to take a better look at what kind of tax burden I'd be looking at. I'm still a novice at doing those types of calculations.
In non-registered accounts, it is likely most efficient tax-wise to hold your bond allocation via HBB.TO there before anything else.

To calculate the tax burden of standard ETFs vs. swap ETFs, multiply your marginal tax rate by the gross dividend rate (before foreign withholding taxes becuase this is credited back on your tax return). Once you have this number, add the management fee for the standard ETF. If this combined number is higher than the swap ETF's management and swap fee, than swap is a better way to go.

Swap is almost always better for foreign ETFs and bonds.

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6679
  • Location: BC
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #20 on: February 22, 2019, 06:57:34 PM »
I am a little nervous that swap ETFs will have the law changed to eliminate the tax advantages....   I guess we were burned by REITs a couple of decades ago when Harper did not keep that one campaign promise.... so I am leary of any new product that seems to use a loophole to improve tax efficiency.

What do you all think?  You are likely much better educated on this topic than I am.

RichMoose

  • Pencil Stache
  • ****
  • Posts: 971
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #21 on: February 23, 2019, 10:43:54 AM »
I am a little nervous that swap ETFs will have the law changed to eliminate the tax advantages....   I guess we were burned by REITs a couple of decades ago when Harper did not keep that one campaign promise.... so I am leary of any new product that seems to use a loophole to improve tax efficiency.

What do you all think?  You are likely much better educated on this topic than I am.
It's impossible to try predict government. Over the past few years I've heard speculation many times that the inclusion rate for capital gains is going up to 66% or 75%, that the Canadian dividen tax credit was going to be changed, that a capital gains tax on personal houses was going to be enacted, that small businesses were going to lose their capital gains tax exemption amount, and many more.

Income trusts were certainly a poor call by the government. It seems to me to be very reasonable that shareholders pay the income tax directly based on their personal economic situation (marginal tax rate) rather than paying the tax at the corporate level.

On the other hand, there's nothing stopping government from cancelling the TFSA, setting a minimum tax rate on RRSP/RRIF withdrawals, cancelling the pension sharing between spouses, or any other number of little benefits that can allow savvy investors to pay very low rates on investment income.

K-ice

  • Pencil Stache
  • ****
  • Posts: 945
  • Location: Canada
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #22 on: February 23, 2019, 08:53:07 PM »

US domiciled funds (which includes things like VXUS, which is global ex-US, not just US company ETFs) should be held in an RRSP if possible because they do not lose the 15% foreign withholding tax on dividends.

I need a little more help, so are  VUN &/or VUS good to hold in your RRSP?

Do you need to do a Norbert-Gambit to convert CAD to USD first?

Thanks

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6679
  • Location: BC
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #23 on: February 23, 2019, 11:00:21 PM »
I am a little nervous that swap ETFs will have the law changed to eliminate the tax advantages....   I guess we were burned by REITs a couple of decades ago when Harper did not keep that one campaign promise.... so I am leary of any new product that seems to use a loophole to improve tax efficiency.

What do you all think?  You are likely much better educated on this topic than I am.
It's impossible to try predict government. Over the past few years I've heard speculation many times that the inclusion rate for capital gains is going up to 66% or 75%, that the Canadian dividen tax credit was going to be changed, that a capital gains tax on personal houses was going to be enacted, that small businesses were going to lose their capital gains tax exemption amount, and many more.

Income trusts were certainly a poor call by the government. It seems to me to be very reasonable that shareholders pay the income tax directly based on their personal economic situation (marginal tax rate) rather than paying the tax at the corporate level.

On the other hand, there's nothing stopping government from cancelling the TFSA, setting a minimum tax rate on RRSP/RRIF withdrawals, cancelling the pension sharing between spouses, or any other number of little benefits that can allow savvy investors to pay very low rates on investment income.
Good points.

I am nervous about the swap ETFs because they were developed fairly recently, and it seems like the government just hasn't caught up yet... where many of the other items you mentioned are very well established or actually created by the government in the first place.   Perhaps a false sense of security on those.

An example of the government having to "catch up" -- in the 1980's, 90's, investors could buy art, have it appraised, and then donate it and claim the tax credit for donations.   Because they would buy it at $2000 and donate it at $15,000 appraised value, the credit was more than the original art value, and it was a tax loophole of sorts, but technically legal at the time.   Quite a few people were burned by that one.

daverobev

  • Magnum Stache
  • ******
  • Posts: 3443
  • Location: France
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #24 on: February 24, 2019, 02:38:05 AM »

US domiciled funds (which includes things like VXUS, which is global ex-US, not just US company ETFs) should be held in an RRSP if possible because they do not lose the 15% foreign withholding tax on dividends.

I need a little more help, so are  VUN &/or VUS good to hold in your RRSP?

Do you need to do a Norbert-Gambit to convert CAD to USD first?

Thanks

No, VUN is VUN.TO - listed on the TSX, in Canadian dollars. This is exactly what will lose the 15% withholding in an RRSP.

So, you convert CAD to USD and then buy VTI (for example) which is a US-domiciled ETF in USD.

RichMoose

  • Pencil Stache
  • ****
  • Posts: 971
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #25 on: February 24, 2019, 11:28:42 AM »
Good points.

I am nervous about the swap ETFs because they were developed fairly recently, and it seems like the government just hasn't caught up yet... where many of the other items you mentioned are very well established or actually created by the government in the first place.   Perhaps a false sense of security on those.

An example of the government having to "catch up" -- in the 1980's, 90's, investors could buy art, have it appraised, and then donate it and claim the tax credit for donations.   Because they would buy it at $2000 and donate it at $15,000 appraised value, the credit was more than the original art value, and it was a tax loophole of sorts, but technically legal at the time.   Quite a few people were burned by that one.
While swap ETFs are newer, the idea has been in practice for a long time. It's not too unlike corporate class mutual funds or T funds or even buying deep in-the-money LEAPS options (or other kinds of derivatives like special warrants that we plebs can't typically access).

The idea is even seen in the more recent shift towards buybacks instead of dividend payments. Governments are great at creating tax loopholes and fixing them with more tax loopholes. Unless the government is actively talking about changing the rules,has campaigned on it, or the rule becomes a PR nightmare, I think it is best to invest in the present and do what is most tax efficient right now.

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6679
  • Location: BC
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #26 on: February 24, 2019, 03:37:25 PM »
Good points.

I am nervous about the swap ETFs because they were developed fairly recently, and it seems like the government just hasn't caught up yet... where many of the other items you mentioned are very well established or actually created by the government in the first place.   Perhaps a false sense of security on those.

An example of the government having to "catch up" -- in the 1980's, 90's, investors could buy art, have it appraised, and then donate it and claim the tax credit for donations.   Because they would buy it at $2000 and donate it at $15,000 appraised value, the credit was more than the original art value, and it was a tax loophole of sorts, but technically legal at the time.   Quite a few people were burned by that one.
While swap ETFs are newer, the idea has been in practice for a long time. It's not too unlike corporate class mutual funds or T funds or even buying deep in-the-money LEAPS options (or other kinds of derivatives like special warrants that we plebs can't typically access).

The idea is even seen in the more recent shift towards buybacks instead of dividend payments. Governments are great at creating tax loopholes and fixing them with more tax loopholes. Unless the government is actively talking about changing the rules,has campaigned on it, or the rule becomes a PR nightmare, I think it is best to invest in the present and do what is most tax efficient right now.
Okay, I will keep checking them out.... Unfortunately I don't have so much non-registered money that I need a good fit for it... each year the TFSA gains another $6k in contribution room x 2 persons... and my semi FIRE income is pretty low.   I am working mainly on moving RRSP to TFSA when my marginal bracket is very low, so I may end up with swap ETFs for a couple of years.

K-ice

  • Pencil Stache
  • ****
  • Posts: 945
  • Location: Canada
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #27 on: February 24, 2019, 08:57:45 PM »

No, VUN is VUN.TO - listed on the TSX, in Canadian dollars. This is exactly what will lose the 15% withholding in an RRSP.

So, you convert CAD to USD and then buy VTI (for example) which is a US-domiciled ETF in USD.

Perfect!  That is exactly what I needed to know.

So if I already have some US cash can I move that in-kind into an RRSP?  I wonder what exchange rate the CRA would use for my contribution.   


daverobev

  • Magnum Stache
  • ******
  • Posts: 3443
  • Location: France
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #28 on: February 25, 2019, 02:03:23 AM »

No, VUN is VUN.TO - listed on the TSX, in Canadian dollars. This is exactly what will lose the 15% withholding in an RRSP.

So, you convert CAD to USD and then buy VTI (for example) which is a US-domiciled ETF in USD.

Perfect!  That is exactly what I needed to know.

So if I already have some US cash can I move that in-kind into an RRSP?  I wonder what exchange rate the CRA would use for my contribution.

Your brokerage will deal with that - the contribution notification you get will tell you.

Mighty Eyebrows

  • 5 O'Clock Shadow
  • *
  • Posts: 41
  • Location: Vancouver Island, Canada
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #29 on: March 02, 2019, 12:53:28 AM »
While swap ETFs are newer, the idea has been in practice for a long time. It's not too unlike corporate class mutual funds or T funds or even buying deep in-the-money LEAPS options (or other kinds of derivatives like special warrants that we plebs can't typically access).

The idea is even seen in the more recent shift towards buybacks instead of dividend payments. Governments are great at creating tax loopholes and fixing them with more tax loopholes. Unless the government is actively talking about changing the rules,has campaigned on it, or the rule becomes a PR nightmare, I think it is best to invest in the present and do what is most tax efficient right now.

Interesting perspective on swap ETFs. Thanks.

Prairie Moustache

  • Stubble
  • **
  • Posts: 198
  • Location: Somewhere Flat
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #30 on: March 29, 2019, 12:37:18 PM »
@RichMoose I was talking to sieben about HXT.TO last time we met up and we were discussing how it provides a fair bit less diversification than, say, VCN (212 holdings) versus 60 for HXT.TO. Would there be a reason they chose to track the S&P TSX 60 over the composite index?

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6679
  • Location: BC
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #31 on: March 29, 2019, 12:52:15 PM »
I found a stumbling block on my plan for keeping dividend stocks in non-registered (as I have between $20k and $36k of income)...

Each year the TFSA grows by another $6k.   My income is FIRE level, and pretty much just covers my monthly expenses, or even a bit less.   I now have more room in my TFSA, for 2019 and the only place to top it up from is my dividend non-registered fund.

So, it looks like in a few years, 100% of my holdings may be back in my registered with zero in my non-registered... even if I am gradually moving a bit of RRSP out each year for the low tax rates.  Anyway, this makes holding a smallish non-registered account a bit less optimal, due to the trading costs and hassle.   I will have to calculate how much RRSP I should move each year to see what makes sense.

This was the final year for my almost 17 year old kid to be able to generate CB payments, so we kept up with RRSP anyway... but in future that is not an issue.

Mighty Eyebrows

  • 5 O'Clock Shadow
  • *
  • Posts: 41
  • Location: Vancouver Island, Canada
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #32 on: March 31, 2019, 12:34:43 AM »
The idea is even seen in the more recent shift towards buybacks instead of dividend payments. Governments are great at creating tax loopholes and fixing them with more tax loopholes. Unless the government is actively talking about changing the rules,has campaigned on it, or the rule becomes a PR nightmare, I think it is best to invest in the present and do what is most tax efficient right now.

For anyone considering Horizons Swap ETFs, it is worth noting that the 2019 Liberal budget *may* have a serious impact on their tax status:

https://www.horizonsetfs.com/news/Press-Release/Horizons-ETFs-Assessing-Impact-of-Proposed-Federal

Prairie Moustache

  • Stubble
  • **
  • Posts: 198
  • Location: Somewhere Flat
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #33 on: March 31, 2019, 03:43:11 PM »
Thanks for the heads up Mighty Eyebrows. I figured this would happen shortly after I get into taxable investing. Haha.

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6679
  • Location: BC
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #34 on: March 31, 2019, 05:14:02 PM »
The idea is even seen in the more recent shift towards buybacks instead of dividend payments. Governments are great at creating tax loopholes and fixing them with more tax loopholes. Unless the government is actively talking about changing the rules,has campaigned on it, or the rule becomes a PR nightmare, I think it is best to invest in the present and do what is most tax efficient right now.

For anyone considering Horizons Swap ETFs, it is worth noting that the 2019 Liberal budget *may* have a serious impact on their tax status:

https://www.horizonsetfs.com/news/Press-Release/Horizons-ETFs-Assessing-Impact-of-Proposed-Federal
There is a moneysense article, too.   (that references the Horizon's release above)
A globe and mail article about the tax reform requires a subscription but the title looks good.

From the Moneysense Article: March 19 2019
2019 federal budget was released on March 19th.

 The Budget suggested there will be changes on how swap-based ETFs (like HXT), designed to curb “unfair tax advantages” accruing to taxable investors using so-called Total Return ETFs that don’t hold securities directly but use a swap structure to defer or convert highly taxed dividend income (from qualified Canadian dividends) into lower-taxed capital gains. Horizons ETFs Management, maker of HXT and 14 other total return ETFs, said it is assessing the impact but that the changes won’t take effect until after the 2019 tax year. “It is proposed, not passed,” said Mark Yamada, “...
...PWL’s Ben Felix maintained his skepticism of the swap-based structure: “Passed or not, we now know that the regulatory risk is real.”..
....Yves Rebetez is also cautious about HXT: “ETFs should always preferably be underpinned by the assets they are meant to provide exposure to. When that is not the case, surprises can occur, such as the latest in relation to Total Return swap-based ETFs, where the structure itself is now challenged due to ‘unfair’ tax advantages.


The bolded parts are my emphasis.

I do like the underlying ETF's, but there should be ample registered room for most people to take advantage of these by tax efficient allocations, without requiring the SWAP attributes.   Eligible dividends up to a person with $46k income is also not taxed, so SWAPS are an advantage to people with very large portfolios (larger than room in registered plans) generating a lot of total income each year.

This seems to be a particular target group of people to tax for the liberal government, as they look for ways to pay for their greatly increased CCB and other reforms that have been passed.  My money is on the SWAP Etf's losing a lot of their current tax value in this format.

I think back to when the REIT tax structure was originally changed, and how that impacted a lot of retired seniors (with investments) at that time.  That was with a conservative government, too.

RichMoose

  • Pencil Stache
  • ****
  • Posts: 971
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #35 on: April 01, 2019, 10:32:59 AM »
@RichMoose I was talking to sieben about HXT.TO last time we met up and we were discussing how it provides a fair bit less diversification than, say, VCN (212 holdings) versus 60 for HXT.TO. Would there be a reason they chose to track the S&P TSX 60 over the composite index?
I don't think the diversification issue is a huge concern given what this product provides. First, it is important to recognize that the TSX60 covers 75% of the total Canadian market cap. In many ways, it is not unlike choosing the S&P500 vs. the US Total Market. Second, the tracking of the TSX 60 ETF (XIU.TO) is extremely close to the broader market S&P/TSX Capped Composite ETF (XIC.TO). Finally, the tax advantages of HXT.TO are not insignificant for the right investor. All that said, if the tax advantages didn't exist for this product I would choose a broader index ETF like XIC.TO or VCN.TO over XIU.TO for my Canadian exposure.

Mighty Eyebrows: Thanks for the heads up on the tax changes. Although it's not in effect yet, this is probably sufficient for investors considering starting their exposure to swap ETFs to hold off on that until things become more clear. For investors already in these ETFs, I wouldn't abandon them quite yet until there's a confirmed date and we know exactly what the changes will be.

K-ice

  • Pencil Stache
  • ****
  • Posts: 945
  • Location: Canada
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #36 on: June 04, 2019, 01:12:21 PM »

No, VUN is VUN.TO - listed on the TSX, in Canadian dollars. This is exactly what will lose the 15% withholding in an RRSP.

So, you convert CAD to USD and then buy VTI (for example) which is a US-domiciled ETF in USD.

Perfect!  That is exactly what I needed to know.

So if I already have some US cash can I move that in-kind into an RRSP?  I wonder what exchange rate the CRA would use for my contribution.

I bought my first VTI today. I feel like it is a big deal because I am a Canadian. (lol)

So now I have:

TFSA: VXC (not quite maxed out yet)
RRSP: VAB, VXC & now VTI (USD)  (full)
Taxable: VDY & cash (infinite room ;) )

I need to confirm the actual percentages are in line with my asset allocation. While investing the cash in my taxable I should be able to re-balance allocation. I'm stoked my stash is building in a tax efficient way.

I may have a bit too much US and Canadian, I'm looking for a V** that is foreign (not US) to top up my TFSA. It could be Canadian or USD based. Any suggestions?

daverobev

  • Magnum Stache
  • ******
  • Posts: 3443
  • Location: France
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #37 on: June 04, 2019, 02:26:43 PM »

No, VUN is VUN.TO - listed on the TSX, in Canadian dollars. This is exactly what will lose the 15% withholding in an RRSP.

So, you convert CAD to USD and then buy VTI (for example) which is a US-domiciled ETF in USD.

Perfect!  That is exactly what I needed to know.

So if I already have some US cash can I move that in-kind into an RRSP?  I wonder what exchange rate the CRA would use for my contribution.

I bought my first VTI today. I feel like it is a big deal because I am a Canadian. (lol)

So now I have:

TFSA: VXC (not quite maxed out yet)
RRSP: VAB, VXC & now VTI (USD)  (full)
Taxable: VDY & cash (infinite room ;) )

I need to confirm the actual percentages are in line with my asset allocation. While investing the cash in my taxable I should be able to re-balance allocation. I'm stoked my stash is building in a tax efficient way.

I may have a bit too much US and Canadian, I'm looking for a V** that is foreign (not US) to top up my TFSA. It could be Canadian or USD based. Any suggestions?

It is better to hold Canadian domiciled in a TFSA, when it is a Canadian ETF that holds foreign stocks directly. So ZEA.TO for example. Then you only lose foreign withholding. If you pick VXUS, you lose withholding to the US, AND any withholding on the stocks inside.

If you hold a Canadian ETF that holds a US ETF that holds foreign stocks you're not gaining anything.

Things may have changed but at the time I looked, the BMO ETF (ZEA.TO) did hold stocks directly, but the Vanguard one and possibly the iShares one just wrapped a US-domiciled ETF.

julia

  • 5 O'Clock Shadow
  • *
  • Posts: 81
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #38 on: September 23, 2019, 06:58:10 PM »

 I've reached the point now where I can no longer ignore the tax implications I believe!


May I ask what amount that is for you? I'm wondering if it's even worth buying VGRO if I'm going to have to do a bunch switching/trading for tax efficiency in the near future.

Saskatchewstachian

  • Stubble
  • **
  • Posts: 210
  • Age: 29
  • Location: SK
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #39 on: September 24, 2019, 08:03:59 AM »
...
...

I bought my first VTI today. I feel like it is a big deal because I am a Canadian. (lol)

So now I have:

TFSA: VXC (not quite maxed out yet)
RRSP: VAB, VXC & now VTI (USD)  (full)
Taxable: VDY & cash (infinite room ;) )

I need to confirm the actual percentages are in line with my asset allocation. While investing the cash in my taxable I should be able to re-balance allocation. I'm stoked my stash is building in a tax efficient way.

I may have a bit too much US and Canadian, I'm looking for a V** that is foreign (not US) to top up my TFSA. It could be Canadian or USD based. Any suggestions?

Have you looked into VIU? It's title is "FTSE Developed All Cap ex North America Index ETF" it's a little higher on the MER at 0.23% but I think it would meet your non-US criteria. It's CAD based which is nice as you don't lose anything in forex then.

K-ice

  • Pencil Stache
  • ****
  • Posts: 945
  • Location: Canada
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #40 on: September 24, 2019, 10:41:42 AM »
Thanks Saskatachewastachian.

I looked into it and pulled the trigger.  Thanks.

I feel I am now quite well balanced, allocated & located.




 I've reached the point now where I can no longer ignore the tax implications I believe!


May I ask what amount that is for you? I'm wondering if it's even worth buying VGRO if I'm going to have to do a bunch switching/trading for tax efficiency in the near future.

Julia, for me it was even before my TFSA and RRSP were full because I had some Canadian dividend stocks. Your RRSP amount is highly variable based on income and years worked.  But I would guess close to the $100K invested in when you need to worry.

At the same time, don't stock pile $100K cash before investing. VGRO is a good place for it to sit.




julia

  • 5 O'Clock Shadow
  • *
  • Posts: 81
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #41 on: September 24, 2019, 02:48:15 PM »
Thanks Saskatachewastachian.

I looked into it and pulled the trigger.  Thanks.

I feel I am now quite well balanced, allocated & located.




 I've reached the point now where I can no longer ignore the tax implications I believe!


May I ask what amount that is for you? I'm wondering if it's even worth buying VGRO if I'm going to have to do a bunch switching/trading for tax efficiency in the near future.

Julia, for me it was even before my TFSA and RRSP were full because I had some Canadian dividend stocks. Your RRSP amount is highly variable based on income and years worked.  But I would guess close to the $100K invested in when you need to worry.

At the same time, don't stock pile $100K cash before investing. VGRO is a good place for it to sit.

I'm doing an experiment and leaving my maxed out TFSA with my financial adviser (invested in individual stocks). I opened up a taxable account at questrade and I'm seeing if he can truly out perform the market as he claims.

Lews Therin

  • Magnum Stache
  • ******
  • Posts: 3033
  • Age: 30
  • Location: Gatineau
  • Used to be Canadian Ben
Re: Tax Efficiency Across RRSP, TFSA and Taxable Accounts
« Reply #42 on: September 24, 2019, 02:56:50 PM »
Thanks Saskatachewastachian.

I looked into it and pulled the trigger.  Thanks.

I feel I am now quite well balanced, allocated & located.




 I've reached the point now where I can no longer ignore the tax implications I believe!


May I ask what amount that is for you? I'm wondering if it's even worth buying VGRO if I'm going to have to do a bunch switching/trading for tax efficiency in the near future.

Julia, for me it was even before my TFSA and RRSP were full because I had some Canadian dividend stocks. Your RRSP amount is highly variable based on income and years worked.  But I would guess close to the $100K invested in when you need to worry.

At the same time, don't stock pile $100K cash before investing. VGRO is a good place for it to sit.

I'm doing an experiment and leaving my maxed out TFSA with my financial adviser (invested in individual stocks). I opened up a taxable account at questrade and I'm seeing if he can truly out perform the market as he claims.

That's how Warren Buffet made a million dollars. Too bad he bet on the index vs any mutual fund person in the world who wanted to take the bet.

You're on the wrong side of every scientific study.