# ZSP vs RY in non registered account



## Landlordnomore (Sep 23, 2019)

Ok. I am not at all savvy at investing aside from the fact that I know ZSP has performed much better than RY. I am tempted to sell my RY shares and buy ZSP. What disadvantages would I face doing so? Would there be higher taxes in capital gains and dividends in ZSP since it holds US equities? Will I actually gain from the switch from RY to ZSP even after higher taxes? I know I'm very ignorant in this subject, please bear with me. Thank you in advance.


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## james4beach (Nov 15, 2012)

Landlordnomore said:


> Ok. I am not at all savvy at investing aside from the fact that I know ZSP has performed much better than RY. I am tempted to sell my RY shares and buy ZSP. What disadvantages would I face doing so? Would there be higher taxes in capital gains and dividends in ZSP since it holds US equities? Will I actually gain from the switch from RY to ZSP even after higher taxes? I know I'm very ignorant in this subject, please bear with me. Thank you in advance.


They are very different investments. ZSP tracks the American S&P 500 index so it's the broad US stock market.

RY is Royal Bank of Canada. It's just one stock, and it's Canadian focused. The performance of any single stock can vary tremendously from the performance of the 'broad market'. On top of that, performance between countries varies.

For all we know, going forward in time, RY could perform better than ZSP. In fact, nobody can predict which will perform better ... they are both equally valid investments. Either one can perform the best going forward.

The question I would ask instead is: what is your investment plan, or your portfolio plan? It's worth spending time and effort developing that plan. Some kind of investment plan will let you structure your investments according to a cohesive strategy. Without a plan, you'll end up making 'ad hoc' decisions like the one you are discussing right now.


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## Landlordnomore (Sep 23, 2019)

I guess what I want to know is: is capital gains on ZSP taxed higher than RY?


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## Spudd (Oct 11, 2011)

Landlordnomore said:


> I guess what I want to know is: is capital gains on ZSP taxed higher than RY?


No, they are taxed the same. Dividends on ZSP are taxed as regular income while RY dividends are tax-advantaged.


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## Landlordnomore (Sep 23, 2019)

Thank you! It was hard finding the answer on Google


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## Eder (Feb 16, 2011)

ZSP has only been around about 7 years...why not test RY against the SPY so a longer track record is established?

So 25 years?

10k in SPY becomes $92,000 USD
10k in RY becomes $326,000 CAN

I guess the thing is will the S&P continue to pound Canadian investments forever or is regression to the mean inevitable?


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## dubmac (Jan 9, 2011)

Eder said:


> I guess the thing is will the S&P continue to pound Canadian investments forever or is regression to the mean inevitable?


are you referring to the negative effect that the US currency has no buying ZSP when you refer to "Pound cdn investments"?


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## Eclectic12 (Oct 20, 2010)

Landlordnomore said:


> Thank you! It was hard finding the answer on Google


Keep in mind you are making two changes. 

One change is from a Canadian company to a US index where the companies that make it up have business in the US.

The second change is from a company structure to the ETF structure. RY pays only eligible dividends plus for the cost base, is at the easy end of the spectrum (i.e. only buys/sells/re-investment change the cost base). 

ZSP is a Canadian domiciled ETF which pays mixed income and for the cost base, is on the the more complicated end of the spectrum.

In 2019, income paid included types "return of capital", "foreign income" with "foreign tax deducted". Since a non-registered account is mentioned, if you buy ZSP you will want to claim the foreign tax credit to adjust for the taxes already paid to the US gov't.

Tax Info





ETF Centre - CA EN ADVISORS


Home




www.bmo.com





Cost Base Info








TaxTips.ca - Tax treatment of income from exchange traded funds


TaxTips.ca - Tax treatment of income from investments in exchange traded funds (ETFs); How to calculate the capital gain or loss on ETFs.




www.taxtips.ca












Phantom Distributions and Their Effect on Adjusted Cost Base | Adjusted Cost Base.ca Blog






www.adjustedcostbase.ca






Brokers have been improving so their cost base numbers may be correct. Unless one learns how the cost base is changed for ETFs then checks it, one won't know if the numbers the broker supplies are correct and whether one may be over paying taxes.


Cheers


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> ZSP is a Canadian domiciled ETF which pays mixed income and for the cost base, is on the the more complicated end of the spectrum.
> 
> In 2019, income paid included types "return of capital", "foreign income" with "foreign tax deducted". Since a non-registered account is mentioned, if you buy ZSP you will want to claim the foreign tax credit to adjust for the taxes already paid to the US gov't.


Yeah, I consider the tax (ACB) tracking pretty complicated for these. I hold ZSP inside my registered account and am hesitant to hold it in my non registered account.

In a non reg account, I think tax-related tracking is easier for RY than ZSP.


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## Eder (Feb 16, 2011)

dubmac said:


> are you referring to the negative effect that the US currency has no buying ZSP when you refer to "Pound cdn investments"?


No...I compared SPY to RY, just wanted to show that the US market has been real hot lately but in the long run I think holding RY will be much more profitable...imo


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## Landlordnomore (Sep 23, 2019)

I was thinking maybe it's better to switch out of high dividend investments since it is unecessarily inflating our household income. We received a much reduced BC recovery benefit because of our high income last year. Besides, its the overall performance that matters.


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## Landlordnomore (Sep 23, 2019)

We use quicken to produce reports for tax purposes regarding ACB


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## james4beach (Nov 15, 2012)

Landlordnomore said:


> I was thinking maybe it's better to switch out of high dividend investments since it is unecessarily inflating our household income. We received a much reduced BC recovery benefit because of our high income last year. Besides, its the overall performance that matters.


Do you have a very large position in RY? If it's a big position then you might have a high concentration in a single stock and you might benefit from switching to XIU or ZSP (or both) to diversify your holdings


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## Ukrainiandude (Aug 25, 2020)

Eder said:


> in RY becomes


Is RY largest Canadian bank equivalent to DB largest German bank?


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## Landlordnomore (Sep 23, 2019)

james4beach said:


> Do you have a very large position in RY? If it's a big position then you might have a high concentration in a single stock and you might benefit from switching to XIU or ZSP (or both) to diversify your holdings


We hold TD, RY, BMO and ZDJ and recently added some ZSP and VEQT. Yes, it is risky putting too many eggs in a few baskets but I believe canadian banks are sufficiently safe vessels. Besides, when market tanks, everything else goes. Appreciate all your advice here.


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## GreatLaker (Mar 23, 2014)

Landlordnomore said:


> We use quicken to produce reports for tax purposes regarding ACB


ZSP and ZDJ both issue ROC and have Reinvested Distributions (not every year, but some years). If you want Quicken to accurately track ACB you need to manually enter those transactions. ROC lowers your cost base and you will under pay taxes when you sell if you don't track it. Reinvested distributions increase cost base. You pay taxes on the distributions when received, then if you don't track it you will pay taxes again when you sell.

You can see the BMO tax info for ZSP and ZDJ here. (You will need to change the year in the dropdown list since the 2020 tax info is not populated in the table yet.
ZSP: ETF Products | GAM investor | BMO Global Asset Management
ZDJ: ETF Products | GAM investor | BMO Global Asset Management

In addition to the ETF websites, my broker also issues documents with info that can be used to track RoC and Reinvested Distributions. I use TDDI. Reinvested distributions are listed on the March statement. TD issues an annual Trust Income Summary that lists RoC transactions. The trust income summary is all the detailed transactions that roll up to the T3 tax slip. 

This post on Financial Wisdom Forum explains how to track it in Quicken.
Return of Capital - Financial Wisdom Forum 

PWL Capital wrote this WP on tracking ACB:
As Easy as ACB - Understanding and tracking your adjusted cost base with ETFs | PWL Capital 

It's a bit daunting at first to find the data and understand what to do with it. But once you learn it, it's about the same amount of effort as adjusting your cost base after a buy or sell transaction, or a reinvested dividend.


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## Landlordnomore (Sep 23, 2019)

Thanks for your post Greatlaker. Lucky for me, my trusty husband has been doing this all along.


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## Retiredguy (Jul 24, 2013)

I was wanting to do some early tax prep work regarding nvu.un as it got bought out this year. I thought they may publish, early the monthy roc amount for 2020. Anyone aware of this?


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## Landlordnomore (Sep 23, 2019)

GreatLaker said:


> It's a bit daunting at first to find the data and understand what to do with it. But once you learn it, it's about the same amount of effort as adjusting your cost base after a buy or sell transaction, or a reinvested dividend.


I was just wondering how many investors actually track ACB, considering how much work and time it takes. Also, isn't T3 issued yearly sufficient as it is what CRA is going with at their end?


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## Eclectic12 (Oct 20, 2010)

Several who have taken the time to learn what's involved in the more complicated ACB tracking of ETFs have said that once the knowledge was gained and a system that suits them was setup, they might spend half an hour a year on it.

IAC, the investor is responsible for the ACB. If they don't learn what's involved and check what the broker syas - the investor does not know if there is a problem or not. As well, all it takes for the broker's number that is right for what's in the brokerage to end up being wrong for the tax return is holding the same shares in multiple non-registered accounts or an investor transferring shares/units from say a CAD account to a USD account.

For an ETF, the T3 isn't sufficient as it does not list the reinvested capital distributions (aka phantom distributions) in a way that is easy to figure out. Missing adding these distributions to the cost base means one pays more capital gains taxes that is owed.

Another potential problem with the T3 slip is if one takes the RoC numbers from box 42 but does not notice three different companies are rolled up into that single number. The broker likely provides a summary document that would break it down but I know some investors who only download the T3 slip from their broker.


Having seen errors by different players over the years, including CRA - I'm much happier to have my numbers come out to match what the brokerage is reporting and what CRA has versus hoping for the best.


Cheers

*PS*
Some like me will use an excel spreadsheet. Some will pay a bookkeeper or accountant. Some will use software like Quicken. Some will used a web based system like Adjusted Cost Base.ca - The Free and Easy Way to Calculate ACB and and Track Capital Gains


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## GreatLaker (Mar 23, 2014)

^^^ What he said. 

I use adjustedcostbase.ca but it wouldn't be much harder to use a spreadsheet.

I take the RoC from the TD Trust Income Summary and enter it into ACB.ca as a RoC transaction
I take Reinvested Distributions from my March TDDI statement and enter it into ACB.ca as Reinvested Distribution
Then I export from ACB.ca to a spreadsheet in case ACB.ca ever shuts down

DONE.and.DONE


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