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Thread: Most Tax Efficient ETFs

  1. #11
    Senior Member My Own Advisor's Avatar
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    "There is also a risk that our Federal government may decide to close this loophole."

    I'm surprised they haven't to date. The ability to defer tax, in a taxable account, just seems odd but I guess they allow it because capital gains (or losses) are not realized until there is a sale in non-reg. accounts.

    Hidden Content - Working on a $1 million portfolio and $30k per year from it.

  2. #12
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    You avoid the withholding tax on dividends with HXS, but there are swap fees (in addition to the MER of the ETF, paid to the counterparty) which, depending on your tax bracket, may be equivalent or even greater than the withholding that is avoided.

  3. #13
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    Thanks for the responses to help my understanding of HXS. Did some more reading, and seems like this could be a good solution for getting US exposure in a non-registered account. The MER + swap fees is about 0.4%.

    In RRSP Us-listed ETF is still the best, in a TFSA the withholding tax on 2% dividend return is 0.3%, so comparable once MER is accounted for. But in non-registered, the tax on US dividends would likely be greater than the 0.3% swap fee. As said previously though, will be up to each individual scenario. Looks like a nice option though.

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  5. #14
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    Quote Originally Posted by EngPhysGuy View Post
    Thanks for the responses to help my understanding of HXS. Did some more reading, and seems like this could be a good solution for getting US exposure in a non-registered account. The MER + swap fees is about 0.4%.

    In RRSP Us-listed ETF is still the best, in a TFSA the withholding tax on 2% dividend return is 0.3%, so comparable once MER is accounted for. But in non-registered, the tax on US dividends would likely be greater than the 0.3% swap fee. As said previously though, will be up to each individual scenario. Looks like a nice option though.
    I have a fair amount of my portfolio in my non-reg and also my corporate investment account...swaps have been a godsend for me. From my projections, the tax deferral wins out handily over the additional cost of the swap and even when you factor in that CDN-eligible dividends are sometimes taxed at an even lower rate than capital gains (dependent on your tax bracket), the savings are there.

  6. #15
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    Quote Originally Posted by My Own Advisor View Post
    "There is also a risk that our Federal government may decide to close this loophole."

    I'm surprised they haven't to date. The ability to defer tax, in a taxable account, just seems odd but I guess they allow it because capital gains (or losses) are not realized until there is a sale in non-reg. accounts.
    I share this concern that they will close this loophole.

  7. #16
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    From my understanding, even if the government close the tax deferral "loophole", the investor holding swap-based ETF would be better to realise and pay tax on his cap gain than to pay a yearly tax on years and years of dividends/interests. The case is even stronger for swap-based bonds ETF since interests is taxed at marginal tax rate.

    disclosure: i hapilly hold a large chunk of HBB in my non-reg
    My portfolio: VCN, VUN, VIU, VEE, HBB, ZRE

  8. #17
    Senior Member GreatLaker's Avatar
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    Considering the tax loophole
    HXT has $1B assets. Say 2.5% TSX dividend yield = $25M annual dividends. At 25% marginal tax on dividends, that's $6.25M lost annually in tax, that eventually will be taxed as capital gains.

    So without calculating it to 3 decimal places and overthinking it too much, I think Bill Morneau has better things to do than close $6M tax loopholes, like trying to explain how and when the deficits that JT is running up will ever get paid off.
    Eschew obfuscation. Espouse elucidation

  9. #18
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    And from a principle standpoint, there are reasons why swaps should not be taxed (ie, unless you want to allow counterparties to deduct from their income to avoid double taxation).

  10. #19
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    I guess on the broader scale, it begs the question for me: why on earth have such a convoluted tax code to begin with? Other than keeping thousands of people of employed in government?

    It just doesn't make sense why things (our tax code) are so complicated - but I'm a simple guy.

    @GreatLaker - I get the priority....$6 M is a not even a drop in the bucket. There are bigger issues at play. Like how to play with political game with Trump!!!

    Hidden Content - Working on a $1 million portfolio and $30k per year from it.

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