3 comments

  1. LoonieDoc, I think your second calling is to be an accountant! I don’t think my accountant could’ve done the detailed analysis that you did. Great detailed post! As for your comparison with leaving the money in the CPCC with the tax-drag in the CPCC, what about using Horizons’ swap-based ETFs (HXS (S&P500) and HXT (TSX), in which there are no distributions, but total return includes the dividend. These swap-based ETFs just have capital gains, when you sell it. MERs are comparable for HXT and higher for HXS, but quick glance shows that the total returns are similar to Vanguards and iShares similar ETFs. I wonder then if you calculate the portfolio gain in 25 yrs what that would be?

    I have heard of this strategy, but have not implemented it. Like yourself, I have saved/am saving as much $$$ as a I can in my CPCC to maximize the grandfathered portion. I am anxiously awaiting to hear the 2018 Budget to see what they plan on doing. Hopefully, they don’t surprise us with an unexpected tax measure.

    btw, thanks for the nod in your post. Appreciate it!

    1. Thanks. This has been a major learning exercise for me, but I would still never implement anything without running it by my CPA/CFP. We have fun and stimulating discussions. I am happy that you bring up the swap based-ETFs. I am actually planning a series on maximizing tax efficiency of the various accounts in a portfolio and those ETFs are great by changing dividends to capital gains, eliminating tax drag in taxable accounts while accumulating. I am torn on the tax drag issue in a CPCC because dividends also build the opportunity for tax-free capital dividends which you could use later to manipulate your income to control your taxes in the withdrawal phase from your corporation. I need to investigate, but it is a bit of a moot point for me right now because I am afraid to shuffle anything in my CCPC in case it affects grandfathering. I think in the past spousal loans probably didn’t matter much for us because we could just use a CPCC which was simple and more flexible with comparable returns, but that may change for some if the CCPC passive investment income gets capped at $50K/yr.

      The fee drag on those ETFs you mention is negligible compared to comparable ETFs as you point out. They also have some foreign market swap based ETFs. They are a bit more complicated to compare from a tax standpoint with the foreign withholding taxes and exchange swap fees. HXT and HXX were worth it for me and are in my wife’s taxable account. I made a calculator in the process of figuring that out and I have already done the analysis for my portfolio which resulted in some shuffling. Stay tuned!

    2. Just plugged the numbers into my spousal loan calculator and if you have a CCPC invested earning only capital gains, then the income after-tax income on withdrawing would be $135,500/yr compared to $134,700/yr with a spousal loan (including interest drag assuming that the low income spouse invests every dollar they earn). They are dead even pretty much.

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