Building A Tax Efficient Portfolio Just Got Easier: Introducing Robocorp

There are many ways to build a portfolio and multiple factors to consider like risk tolerance, fee drag, diversification, and tax efficiency. We also need to keep the goals of why we are investing, such as building financial capital for retirement, as a compass to guide us. In building towards that end-game, we should also consider the effects of taxation on accessing the money in the future.

Why Build Robocorp?

That portfolio building complexity can paralyze people from investing. The worst possible outcome. So, a simple-to-execute plan is paramount. There are different ways to do that. You can pay to have an advisor to do this for you. Just be sure to find a good advisor. If you do, like purchasing any service, make sure that they are providing good value for your dollars.

DIY investing should only take people a few hours per year.

Those who choose to DIY invest and manage their own portfolios can save millions over their careers. It can pay more per hour than any medical procedure a doctor can perform. It can be empowering.

With help of Robocorp – it can now also be easier.

DIY investing
Take that fee-laden investing…

The steps that take the most time for DIY investors are the planning and math calculations. They are also the most complex and intimidating. Actually buying and selling ETFs only takes minutes and is as easy as online banking.

I meant what I said in my introductory posts about why I am blogging and my mission to help physicians take control of their finances. My hope is that Robocorp will help break down some of the barriers to DIY investing. Not only for high-income professionals – but all Canadians. Plus, I am a little loonie and the making this programme presented an irresistible challenge. I have a hard time walking past an area of need without trying to fill that void.

What is Robocorp?

Robocorp is a web-based tool that follows my approach to tax-efficient investing. You can enter in your account balances/types and desired asset mix. It will then allocate dollars to representative ETFs in each account according to the Robocorp algorithm.

The Robocorp algorithm is my global approach to designing a portfolio in the Canadian context across a corporate account, RRSP, TFSA, and personal taxable account. It also works for those without a professional corporation. High income or not.

What Robocorp is not.

Robocorp is not a robo-advisor.

A robo-advisor is a computer-driven service that buys and sells via a licensed brokerage for you. Many also offer access to an advisor over the phone. It is all for a fee.

Robocorp does not buy and sell investments for you. As a DIY investor, you need to do that yourself via your own brokerage. Robocorp is also free!

I called this tool Robocorp because it does use a computer-based algorithm to meld with your human mind and assist you. It is also the only resource that I know of that does this and makes it gel across multiple account types – including a professional corporation.

Robocorp is not a financial advisor.

I am a doctor. Not a financial professional. So, I am careful not to professionally advise on people’s specific financial situations.

investing professionals

You need to consider whether the portfolio suggestion the calculator produces makes sense for you.

Portfolio management is only one aspect of a financial plan. A financial advisor can provide value for many of the other aspects of your financial planning.

Robocorp is merely a tool for illustrative purposes. You need to decide what to do and execute your plan on your own (as a DIY investor) or with the help of your advisor.

Robocorp is also not a recommendation for specific investments.

It is pre-populated with some example ETFs. These are meant to be representative of certain asset types. There are many alternative ETFs or even individual holdings that may be suitable for your situation. I will review the characteristics of the ETFs used and their intended role in the Robocorp Model Portfolio in another post.

The Full Robocorp Squad

My goal with Robocorp is to empower people to DIY invest. Plus, to make it easier to do so tax-efficiently.

Different levels of DIY investor will have different needs and those will change over time as they gain experience or face new dilemmas. For most, that means a very simple interface and limited options as to not overwhelm them. However, others will need more options to make educated decisions to optimally build their portfolio for the future.

So, there are several versions of Robocorp rolling out.

They all share a similar easy-to-use, step-by-step, guided interface. They also share compatible underlying algorithms to seamlessly graduate to a more complex model if needed.

Rookie Robocorp

robocorp calculator
Click on the robot. You know you want to…

This is the beginner version and the first to roll off of the assembly line. It is meant to help someone get started from scratch.

You enter in your account types, starting balances, and planned contributions. Next, set your desired stock:bonds allocation.

It also offers the options for the more sophisticated investor. You can make custom allocations amongst Canadian, U.S., Non-NA Developed Markets, Emerging Markets, and bonds. The TFSA algorithm is oriented towards growth. However, you can set the priority for that as global diversification or tax efficiency. There are options for $USD or $CAD versions of the different Canadian account types (RRSP, TFSA, Corp, Taxable).

Robocorp takes your inputs and produces a table showing a model portfolio of how much of each ETF to buy in each account.

To rebalance once or twice a year, just repeat the process with the same asset allocation and your updated account balances & contributions. Simple.

Size doesn’t really matter.

Robocorp uses five different ETFs for most portfolios, but up to ten if $USD accounts are mixed in. Don’t let that intimidate you. It is not the number of ETFs that makes managing a portfolio complex. It is deciding where to put them across your accounts and in what amounts that is hard – even with an ultra-simple three or five fund model. Robocorp makes those tasks easy. The difference between three and five ETFs is about $20 in discount brokerage fees and about ten minutes of time.

Here is a great video showing the mechanics of buying an ETF step-by-step.

You can click the icon to above activate the calculator or find it in the right margin of the Loonie Doctor web pages.

Robocorp Rebalancer

This version allows one to enter in their current portfolio and classify their current investments. It then goes through the regular Robocorp algorithm, produces a goal portfolio, and offers a summary of where to consider adding to your positions to rebalance.

Selling investments in taxable accounts is generally undesirable if it triggers capital gains. However, it is sometimes needed if your portfolio strays too far. So, you can set tolerance parameters around that.

This version is still in the construction phase.

Robocorp S.W.A.T.

This bad-boy may look intimidating, but it uses a guided and adaptive interface just like the other versions. It is pretty slick.

S.W.A.T. stands for Special Weapons and Advanced Tax planning. It includes corporate and personal income tax estimators. Those can help to estimate your cash flow for investing.

For those with a corporation, there are features to help plan dividends to minimize the tax drag in a corporate investment account, and estimate when (or if) you might hit the new small business active-passive income tax threshold.

This version is built and tested, but I want to put out more background knowledge-base material onto my blog before unleashing it onto the internet.

The Special Weapon Swap-Based ETF Option in S.W.A.T.

Robocorp S.W.A.T. offers the option of using swap-based ETFs to minimize taxes in a corporate or personal taxable account.

Swap-based ETFs can save on tax, but they also come with some special risks. The main risk is that the government will change the rules to ban them. Those who use these special weapons may collect a risk premium in the form of higher after-tax returns for taking those risks. Or they could get caught by a tax event from triggered capital gains due to a legislative change. No one knows if or when.

However, the risk-reward balance can vary and may be compelling for some people in some circumstances.

So, there are different options for swap-ETF use.

These range from not using them at all. Period. To only using a swap ETF when actually hitting an income threshold where the risk may be worth it. The most aggressive options proactively use swap ETFs in a corporation to delay or avoid hitting the passive income threshold during your working years.

The “maximum assault mode” predicts when a corporation will get pushed over the passive income threshold and gradually adds swap-ETFs (if needed) to hit the threshold around the planned year of retirement. The tax rate over that active-passive threshold rises substantially, making swap-ETFs more attractive. Conversely, the passive income threshold no longer matters if you cut back enough or stop working.

The risk-reward relationship for swap ETFs can vary by account type, income level, and the type of index that it is tracking. The algorithms and options accommodate for that and I will do some detail posts modeling that later. Similar to the post that compared the Bond Total Return Index ETF (HBB.TO) to conventional ETFs in a personal and corporate account.

Robocorp Portfolio Building Prime Directives

Building any portfolio will come with trade-offs. Some may be able to put their entire portfolio into tax-sheltered accounts, but those with large portfolios will not. Even for investors using only an RRSP and TFSA, these account types have complimentary strengths and weaknesses. So, we need some prime directives to guide the algorithm.

  1. Respect the asset allocation chosen based on your risk tolerance.
  2. Minimize tax and fee drag while accumulating by tax efficiently matching investment income and account type.
  3. Build accounts now while considering how to minimize taxes when they are accessed in the future.

There are many moving parts underpinning those prime directives.

The mission of Robocorp is to make it DEAD EASY for a DIY investor to build a tax-efficient Canadian portfolio plan.

You may not care how it does that. Boring. For those that do, the next series of posts will give a high-level overview to understand what is happeing beneath the thick armor-plating of the Robocorp Canadian Portfolio Builders.

I have and will continue building a detailed database of articles on the blog about much of the rationale underpinning different aspects. I also intend to be transparent about how the algorithm works once that basic knowledge-base is built enough that I can reference it.

As a DIY investor, I think that it is important that you understand why you are doing what you are. Even if being aided by a cyborg calculator. I’ll try to not make it too boring.

I spent many hours building and testing Robocorp. If you find it useful, please share it!

Compliments and constructive suggestions are welcomed below. Criticisms will be referred to Robocorp SWAT to follow-up on.

39 comments

  1. Hey LD,

    Will be neat to see what you have come up with.

    I just use a simple excel spreadsheet which lights up when it triggers my pre set bands. It relies on google finance.

    I have a broad strokes view of my accounts.
    Terminal taxation of my CCPC- 40%
    Terminal taxation of my RRSP- 50%
    Terminal taxation of my TFSA- 0

    Then have fun figuring out how to play this thing.

    1. Hey Dr. MB,

      It is great that you are thinking of your accounts in terms of the tax upon exit. While modeling this calculator over 35-year time periods, using that exit-plan-thinking to strategically build the portfolio makes a big difference to the after-tax retirement income. Begin with the end in mind.
      -LD

  2. Wow. This sounds incredible and you are correct that the buying and selling is the easy part. It’s the math and rebalancing that can be tricky.

    I created an excel spreadsheet to help me with my portfolio and for the most part it does well.

    Can us US folks be able to take advantage of this tool?

  3. I’ve been advised to keep my US ETF’s in my TFSA and put Canadian ETF’s into my corporation along with International ETF’s. (Bonds and REITS have filled my RRSP). Your calculator suggests this is not the most tax efficient. Am I missing something?

    My understanding is US ETF Dividends are subject to 15% holding tax no matter if they are in TFSA or Corp Similar to International equities.

    1. Hi Lou,

      Here is the quick and dirty explanation. There will be full articles.

      Canadian ETFs are very good in a corp account because the eligible dividends are very tax efficient if you are paying dividends out of your corp anyway. The algorithm prioritizes putting them there if there is no room left in the RRSP and TFSA. That will be the case for most incorporated people since their biggest account is usually the corp account and their RRSP/TFSAs get filled with bonds, REITs, and international equity. I left REITs out of the calculator, but the RRSP or TFSA are usually the best place for them. So, REITs and bonds in your RRSP is excellent.

      Canadian dividends are also the most tax-efficient equity holding in a TFSA since there is not a foreign withholding tax (FWT) problem and the dividends are relatively large. The problem is that your TFSA could get dominated by Canadian equity if you go a purely “tax-efficiency route” and have a large portfolio with a smaller TFSA. On the results page, there is an option to select “global growth” for the TFSA which will prioritize using more international equity there. If filled with international equity, then it bumps the Canadian to the corp. Personally, my goal for my TFSA is growth and I wouldn’t want all my eggs in the Canada basket.

      US-listed ETF dividends are subject to a 15% FWT. RRSPs are exempt from that by tax treaties. In a taxable account, the FWT is recovered by tax credits when you file your tax return in Canada. It is fully recoverable in a personal account and about half in the corporate account. It is not recoverable in a TFSA at all. So, a TFSA is possibly the worst place to hold US equities. Canadian-listed ETFs holding US-ETFs may even get hit with the FWT twice and only one layer is exempt even in a taxable account!

      The FWT for the other foreign ETFs is around 8% (not recoverable in a TFSA) and the dividends are larger than U.S. companies. So, I would put them in a TFSA before I would put the U.S. ones. Here is a great paper on FWT by Justin Bender and Dan Bortolotti.

      The other factor is the amount of the dividend itself. Non-U.S. markets pay larger dividends (about 3% compared to 1.5-2% for the U.S.). These are taxed as regular income. So, it is best to shelter them if possible. It is even more important to minimize this income in a corporation if you are going to hit the passive income corporate tax threshold. The algorithm puts the highest dividend paying ETFs (except Canadian) in tax-sheltered accounts where possible. Preferably in an RRSP if room, and if no room, then U.S. is the first to get bumped to a taxable account since it has the lowest dividend and highest recoverable FWT rate.

      -LD

  4. Impressive LD! This will definitely help with analysis paralysis for the newbie DIY investors. I will definitely be recommending Robocorp to others.

    I am simply amazed with your ever expanding blogging talents. It has been a pleasure watching you morph from creative photoshopper to designer of practical web-based tools. Awesome!

    DN

  5. You are an amazing person. I am sure it must be gratifying to help a patient, but think of how many people you will help with their finances! What a gift….. I cannot wait to try it. Thank you!

    1. Thanks for the very kind words, Sask to AB. I am really excited about the good I think this will do. I will also make sure that my wife reads this comment – she puts up with my blogging 😉
      -LD

  6. Hey LD,

    I entered my assets into the Robocorp, clicked the “portfolio result” tab, and a spreadsheet appeared telling me to short Canadian banks in my TFSA, hold Bitcoin in my corporate account, use 3:1 leverage for pot stocks in my non-registered account, and hold Venezuelan Bolivar denominated bonds in my RRSP. Did I do something wrong? (or perhaps the algorithm is clairvoyant!)

    But seriously, great work on this algorithm. The interface is really user friendly.

    One question: why does the globally diversified TFSA option hold only VUN, XEF, VEE and no Canadian equity. I’ve been following CPM model of 1/3 each Canadian, US, International for a my TFSA.

    1. Thanks Neuro-doc. That is an excellent question about the TFSA algorithms. It came partially down to a programming issue and partly philosophical.

      There are many interdependent variables. So, it was hard to not create a circular argument between the TFSA and Corp for holding Canadian equity- both are excellent from a tax efficiency standpoint. Also,the dichotomy between the global vs tax efficiency strategy only occurs with large portfolios relative to the TFSA (usually containing a large corp account or taxable account).

      In developing the global growth strategy, Canada only represents about [correction 4%] of the global market and the main “special advantage” of Canadian equity is the eligible dividend efficiency. So, I figured that if going for a “globally diversified” TFSA, the gradual loss of Canada with large overall portfolios was minor and made up for by the Canadian equity being pushed into other accounts where they are very tax-efficient. The trouble with a TFSA is limited space. I built the “global” TFSA strategy to put up to 40% US, up to 40% non-US developed, and up to 20% EMM and then the rest as Canadian (the exact amount of each depends on your portfolio allocation and account sizes). I could have lowered the EMM max to 10%, but decided not to. By the time it becomes an issue, it would mean pushing the EMM into a corp account at a time when that account was getting large and generating enough income that the passive income threshold may become an issue at some point. If I hit the passive income threshold in my corp, I want it to be mostly eligible dividend income causing that.

      There will be a modeling post on this.
      -LD

  7. Can you comment on the underlying assumptions in the algorithm.

    Do the recommendations assume personal income at or near the top personal income tax bracket, and would the results be any different if you are drawing a substantially lower income from the corporation?

    1. Hey Neuro-doc,

      I built the algorithm to adapt to different situations (incorporated, not incorporated, high income, normal income, low income). It is actually pretty complex. I will be explaining all of the aspects of the algorithm over time, but it is going to take a while to get through it all in digestible pieces.

      In terms of corporation withdrawals, algorithm tries to minimize the income in the corporate account. That means that lower dividend dispensing is needed from the corp to trigger RDTOH and stay tax-efficient. Capital gains, followed by eligible dividends, is where a corporate account shines. The algorithm also puts preference on building that corporate investment income as eligible dividends for tax efficiency. It is actually really cool. When I modeled portfolio performance over 35 years, the fee drag compared to an asset allocation ETF made a small difference. The tax drag during accumulation made a moderate difference. The building of different accounts with an eye to how the money would eventually flow out of them made the largest difference. It surprised me a bit – few people think of this!

      -LD

  8. Fantastic tool, LD, which will be a lot of help to many people.

    Your comments about why you excluded Canadian equity from the TFSA are interesting and make perfect sense, especially in the context of someone with a Corp account. Even without a Corp account, I think the optimal asset allocation for a TFSA is a globally diversified equity portfolio, so leaving out Canada is pretty close to that. Actually, according to one resource I use, market cap for Canada is only 2.9%, so a minor consideration.

    Re your comment to Lou, is the recovery rate for the FWT for dividends in a Corp only 50%? I may be wrong, but I thought it was higher than that, more like 80%?

    I look forward to future “under the hood” type blog posts?

    1. Thanks Grant. Foreign withholding tax in a corporate account is complicated beyond my full comprehension. So, when I say 50%, I am referenced back to Justin Bender & Dan Bortolotti’s older white paper on FWT. They used an estimate of 50% which is good enough for me 🙂 They dropped trying to estimate it in their more recent analysis. The exact number doesn’t really change the relative efficiency in different accounts but may change the gap very slightly. So, I am not overly worried about it.
      -LD

  9. Hello. Thanks so much for doing this, it’s a great resource for beginners like myself who have done lots of reading but still haven’t actually implemented anything yet.

    One question, that I still can’t seem to wrap my head around. Many people (including this calculator) seem to advocate putting Bonds in RRSP. I realize that bonds are taxed high, and so there can be savings by putting these in Tax sheltered accounts.

    But if you use up all your RRSP room with bonds, it means that you will need to put International stocks in your Corporate account. My understanding is that the dividends from these are also taxed very heavily (more than 50%). So wouldn’t it make most sense, from a total growth perspective, to put Bonds in a Corporate account (and take the tax hit) so you can use your RRSP room for long term growth International stocks (and also shelter the dividends)? I believe I read somewhere that Justin Bender advocates this as well.

    Thanks again. Really appreciate it.

    1. Hi Newbie Investor,

      The tax on interest and foreign dividends is about the same in a corp account (slightly worse for foreign dividends) as you say.

      My bonds to RRSP strategy is more behavioral and long-range planning driven than short-term tax drag. There will be a full post on this, but I will summarize some key points.

      1) Bonds are to stabilize your portfolio and stop you from making an emotional mistake. That comes at the cost of a lower return compared to equity. Your RRSP is essentially a shared account with the government (they give you a refund now to have more to invest and then take their share of the profits which are all taxed as income upon withdrawal). So, bonds to the RRSP essentially makes the government subsidize your “behavioral insurance cost”. They share the crappy return on bonds with you. People looking at their balance don’t naturally think in after-tax dollars. It is essentially a trick to allow you to have a more aggressive portfolio (better long-term) without stirring your short-term driven emotional beast.

      2) Bonds are also great for rebalancing. Rebalancing in a tax-sheltered account avoids capital gains and is better than in a taxed one. So, it is a good place to have your bonds:equity interface.

      3) Long-term a large RRSP can be hard to draw down and less flexible than a taxable or corp account. If all you have is an RRSP and TFSA, then this is a good problem to have. That is where the argument to hold bonds in taxable comes from. With recent low interest-rates, it would suck to have a small RRSP if that is your main vehicle. If an RRSP is one part of a larger portfolio, it is best to have your big growth in the more flexible accounts. The calculator automatically does this depending if you are using a corp and taxable account or not. It also changes over time as your corp grows, you shift more equity there (without rebalancing capital gains related costs). Further, with even slightly more normal long-term interest rates, it wouldn’t even be a debate.

      Justin Bender actually came to the same conclusion. Here is a link to a summary of his article.

      -LD

    2. Just add to what Looniedoc said about this (which I completely agree with), you can put bonds in Corp and international equities in RRSP, but if you do, you must tax adjust your RRSP in order to keep your equity allocation (and therefore expected return) where you want it to be. Tax adjusting your RRSP is complicated, especially when rebalancing, so most people don’t do it. I know Justin Bender does allocate as you describe, on the grounds that he is not losing the unrecoverable portion of the FWT in a Corp account, with these securities in the RRSP, but then he is tax adjusting the portfolios as well. You also then need to hold US listed foreign equities in the RRSP, another level of complexity. Apart from the reasons that Looniedoc detailed, the main reason I hold bonds in my RRSP, is that if the government is going to own half of something (which is the case with the RRSP), I’d rather it be bonds than stocks. And tax adjusting my portfolio is too difficult for me.

  10. Hello
    Great tool. Thanks to you and others like you for sharing such useful knowledge for free! 3 months ago I didn’t even know what RRSP stood for! Reading your site and the physician fb group has totally changed my take on diy investing/fire etc. I recently started to think about asset allocation and then bang here comes your Robocorp tool! Thanks again.

    So I have been diy investing for few months, total 25k spread into tfsa, resp, RRSP in vgro and 25k in corp in cpp balanced portfolio: 40%zdb/60% equities of vcn/xuu/xef/xec. I put in 2.5k/month. If I now want to switch to a tax efficient asset allocation what would be the least painful way?
    ie would you sell off vgro to buy vab in the RRSP/vun in the tfsa and then add more to buy more equities in the corp till it balances out?
    I seemed to recall reading xuu, xec better for corp – but your using vun, vee?

    1. Hey Thom,
      I can’t really advise others on their personal specifics. However, personally, if it were me I would just sell ZDB. The capital gains are likely to be minimal over that time frame in the corp account. Selling and restarting in the RRSP/TFSA would have no tax consequences. The corp is a great place for VCN. Depending on the capital gains on the XUU/XEF/XEC, I would decide whether to just leave them (no harm and still in small quantity) or sell. They may even have a capital loss and no tax right now given the recent market dip and partial recovery. If I have lots of those in my re-organized TFSA/RRSP, I would consider selling them from the corp and getting more VCN in the corp instead. Little orphan holdings just drive me crazy from an OCD standpoint 😉

      You can’t go majorly wrong this early in the game. Most of us make much bigger “redos” than you are talking about. I learned many lessons the hard way and wish that I had had something like this a decade ago. Would have saved time and some money. You are miles ahead of the person who uses high-fee funds for even a few years no matter what you do. A few minor fault-starts now doesn’t take long to make up for in the grand scheme of things. Good luck!
      -LD

    2. Hi Thom,

      Regarding XUU and XEC being better. Both are Canadian-listed ETFS that hold US-listed ETFs. So, not sure why they would be better. XEF (Non-NA Developed) holds foreign equity directly which removes a layer of FWT which is why I chose it. That said, I think that XEC would be a better match for EMM to XEF than VEE because of the way they treat South Korea. Major fine print here, but I will change that. The ETFs used are merely “representative suggestions”, but I still want them to be the most optimal that I can think of. Thanks for the stimulus!
      -LD

  11. Hi Loonie doc
    Where is the asset allocation to preferred shares in your program?
    Do you count them as half equity or 200 percent fixed income and do you have a place to input them ?
    Thanks

    1. Hi Dr. LM,

      That is great question. I left out preferred shares on purpose for simplicity. However, they can certainly serve a purpose in a portfolio. I use some Canadian rate-reset preferred shares via ZPR.TO in my own portfolio. Here is my quick low-down as general information.

      1) For use with the calculator, I would classify them as Canadian equity since they pay eligible dividends and the algorithm is driven by the tax treatment. You can change the Canadian equity allocation using the custom allocation option in the asset allocation tab to accommodate them if you want.
      2) In terms of where or how I use them personally. I use Canadian preferreds for the eligible dividends. That is most advantageous in a tax-exposed account if you run out of room in your tax-sheltered accounts. In a corp account, they can be useful if you dispense dividends to pay yourself anyway and aren’t getting near the passive income threshold by allowing for more eligible dividends from your corp. That is how I use them. Most Canadian preferred shares are rate reset which means they tend to increase in value when interest rates rise (opposite of bonds). So, also nice to diversify that way. They are a more compelling value option when the spread between the Canadian 5-year interest rate on bonds and the dividend rate of the preferred approaches 3%.
      3) Although preferreds are kind of a hybrid between equity and fixed income, they are not a replacement for bonds. When stock markets tank, preferred shares usually tank too. Bonds provide better portfolio stabilization and “rebalancing money” reservoirs.

      Here is a detailed article about preferred shares in a portfolio from PWL Capital. Two caveats: The timeframe that they looked at was one of falling interest rates (important since rate resets do worse in a falling environment). It also important to distinguish between rate reset and regular preferred shares.

      I may add them and REITS to a future version but didn’t want to scare people off with too much complexity for the “Rookie” version.
      -LD

    1. Just did now. Thanks for the link. It looks pretty nice for maintaining an asset allocation in a given account type. Would be awesome for someone using just an RRSP and TFSA. What I have done is make something that maintains total portfolio asset allocation across different account types in a tax-efficient way. When doing that, the asset allocation within a given account type will actually shift over time as a portfolio grows and the different account types expand at different rates. If we could combine my multi-account algorithm with their Questrade interface, that would be the ultimate solution.
      -LD

  12. Ok, ready for the next one! It’s amazing how many shared thoughts we have, ha, we must read the same blogs:)

    I agree with your choices and reasons behind them so far, but I have come to some different conclusions.

    RRSP will be limited, tfsa will be limited, these are both best for compounding and growth. So I use each for their respective strengths.

    CCPC best for can equity and in our situation low interest holdings. I like receiving eligible dividends from the corp in a lower tax bracket. Can’t complain about 7% tax from a tax deferred account.

    Taxable is for the messy stuff, int, and the rest.

    In all locations using suitable etfs.

    Where we stray is with income level goals, originally, and still mostly (currently) I would like to keep things in respectively low tax brackets and avoid many of the higher levels of taxation on withdrawal you seem to be planning for. I’ve estimated lifetime tax brackets (incl SMB max) and even survivor benefits into my approach as my spouse and I are different ages. But,… I am starting to work on and slightly adjust in your direction as it seems my wife will likely work until they kick her out. Mo money mo problems! Also, having some ability to compound in low tax brackets forces some changes, eg better to hold int equity in taxable. I have drawn some bracket lines with regard to preferred holding locations and when crossed move onto next best choice similar to your robo. Eventually all this matters less as corp, or corp and taxable holdings will hold the majority of all assets.

    As always a pleasure to follow your posts, thought provoking, original, and fills a need. I appreciate the effort you put into sharing what you learn.

    1. Hey Phil,

      I think our portfolio construction approach is very similar. I definitely am a big spender though and am also not ready to slow down for a while yet in the clinical earnings department. The nice thing about building a portfolio like we are discussing is that it gives us flexibility if we end up earning or spending more than we thought. If not, that works too. We will end up with a larger portfolio than we need by the time I pack it in. However, I would like to be able to direct money towards causes and legacies that I value at that point rather than have lost it to the government (and their choices) along the way.
      -LD

  13. Will there be a post on whether whole life insurance is worth considering now with the passive corporate income tax changes?

    1. Hi Bill,

      There will be at some point. However, it is pretty far down my to do list at present. I’d want to do a deeper dive before writing about it and it is very difficult to get good information about returns (whole life is nebulous and opaque around actual returns). My first pass is that I don’t think that the role of whole life has a major change with the new passive income rules. Using it primarily to avoid the SBD is probably just exchanging some tax for the fees and more fixed-income-like returns of whole life. For the majority, investing regularly and some attention to portfolio construction avoids the issue until pretty far down the road in a much lower fee way. At that point, people may simply scale back work.

      I do think that whole life has a role in the right situation. My corporation holds a small policy. The main use of whole life that I see is still for estate planning with a large estate. A small policy could also be a useful adjunct to a larger investment plan, but is definitely not a good “main plan”. It is also a firm long-term commitment and costly to get out of. Like a marriage – something to be very carefully considered before embarking upon.
      -LD

  14. Another great post to bookmark into my “go-to reads” for repeated visiting! Thank you again for this great tool. I’m sure Robocorp is going to give the T2 Legislator a good run for its money.

    Not sure if this is a newbie question, but I was comparing my RRSP/TFSA portfolio modeled under the CPM blog to the maximum tax efficiency RRSP/TFSA from robocorp. I noticed that VUN/VTI was preferred inside the TFSA over XEF. My reasoning to put VTI in the RRSP was because the FWT can be waived in the RRSP, whereas XEF/IEFA I’d have to pay 1 FWT regardless of whether it’s RRSP or TFSA. Am I missing something?

    Also, another OCD question, for US equity I use ITOT rather than VTI. Do you prefer VTI over ITOT in general or just for representative purposes? I’m using ITOT rather than VTI was because it tracks more companies and has a (infinitesimally) lower MER.

    Once again, it’s very nice to have you back with such great content, we should rally in Queen’s park so Adamatium claws can be covered under OHIP for “sparring protection purposes”.

    1. Hi Mark,

      Your raise some excellent issues and thanks for the comment!

      I was just being illustrative using VUN/VTI. ITOT is also excellent and has the advantages you describe. I tried to include a variety of the major ETF providers to not show favoritism while still picking what I think are optimal funds. I don’t want to get too deep into recommending specific funds because I am not qualified to sell securities. I also think that the differences are minor and with competition, the mix and fees are always changing as companies try to one-up each other.

      That is an excellent point about XEF, VUN/VTI in TFSA vs RRSP. Definitely not a newbie question – you are talking about the fine print! XEF is a special case due to its structure (why I picked it). If using just a TFSA and RRSP, then it would be slightly less FWT loss to have VTI/VUN in the RRSP and XEF into the TFSA. The difficulty that I had was when a corp account or a taxable account is added in and there is not enough room to hold all of the foreign exposure within the RRSP/TFSA. Then either VTI or IEFA spills over into a corp or taxable account. If I gave preference for VTI/VUN in the RRSP, then it would usually be the IEFA spilling into the corp or taxable account. (I ran lots of model scenarios over long time frames)

      For those building those larger portfolios, usually, the corp account is much larger than the RRSP/TFSA because it doesn’t have a space limit. The foreign dividend size of XEF/IEFA is much larger – around 3% compared to about 2% for VTI. In a corp or taxable account, the tax rate on the dividend (as income) is usually higher than the FWT issue. For example, the FWT drag on VTI is about 0.25% to 0.3%. So, you only need a top marginal tax rate of over 25-30% for personal income tax to be higher on XEF/IEFA in a taxable account than the FWT loss in a TFSA. The rate in a corp account is 50% and that high dividend would also eat up valuable passive-income room in the corp. So, I prioritized stuffing the higher dividend payer in the registered accounts.

      Update: It was able to make some adjustments so that it now adapts to this nuance seamlessly. Will upload the update this evening after I do some more testing. It is amazing all of the little nuances that this thing automatically does in the background. Thanks for pointing this out – you helped me make it better!
      -LD

  15. Loonie Doc,

    This has upped your game another level.

    While I’ll admit my limited knowledge of the Canadian investment world and regulations limited my ability to fully follow some of the comments, I gather enough to understand the genius underpinning your tool. It’s an impressive and generous public service – thank you.

    Look forward to the U.S. version!

    I can only imagine what you’d have accomplished with two functional hands over the past few months…

    With admiration and not a little awe,

    CD

  16. Trust an intensivist to roll this out one-handed! This is a game changer for Canadians who have every flavour of portfolio, especially corporate ones. THANK YOU.

    Your image link doesn’t work in the post, though. It goes to a 404 page. Fortunately, your sidebar one does work.
    Looking forward to the advanced versions as well. I was just mulling over to myself if we should do GIC’s for our bonds, or take the minimal VAB returns, so I’ll look at your robo-recommendations and decide. Thanks again!

    1. Thanks, Melissa! I am hoping it will be a game changer too. I used it to set up my parents’ portfolio earlier this week. Took about 15 minutes to do RRSPs, TFSAs, and a taxable account from scratch. Would have taken me a half-day and a few drinks previously. Thanks for the heads up on the broken link. I reloaded it and seems fixed.
      -LD

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