Ask the Spud: Can I Make Taxable Investing Easier?

In Episode 4 of the Canadian Couch Potato podcast, I answered the following question from a listener named Jakob:

I’m currently investing with all my ETFs in RRSP and TFSA accounts. This year, however, I’ll finish paying off my mortgage, so I will have more surplus cash and will have to start using taxable accounts. I have been reading your blog posts about adjusted cost base, and they’re helpful, but it still sounds like a pain to track and calculate. I’d consider paying some extra fees for help with this. What options do I have?

Investing in a non-registered account involves a lot more hands-on work than RRSPs and TFSAs. While there’s no such thing as a maintenance-free taxable portfolio, you can certainly make your life easier with a few simple strategies:

1. Consider alternatives to ETFs. Make no mistake: ETFs are generally tax-efficient and they can be a great choice in non-registered accounts. But if you’re a novice index investor, consider other good products that require a lot less recordkeeping. Mutual funds, for example, track your adjusted cost base at the fund level, rather than relying on you or your brokerage to do all the work. In most cases, you won’t have to make any manual adjustments for return of capital or reinvested capital gains. So if you use the TD e-Series index funds in your taxable portfolio, you will find them easier than ETFs.

Another option, if you’re holding fixed income in your taxable account, is to use GICs instead of a bond ETF. There are some tax-efficient bond ETFs available, but again, you will have to do a little work to ensure the book values are accurate. Whereas with GICs there are never capital gains or losses: all you need to do is report the interest indicated on your T5 slip.

2. Keep your ETF holdings simple. I always prefer simplicity in investing, but it’s even more important in a taxable account. This is not the place to build a portfolio with nine or 10 ETFs, especially since these days you can get global diversification with just two or three. You can also reduce your recordkeeping (and probably increase your returns) by keeping your transactions to a minimum.

Just as important is the type of ETFs you select. It’s easy to get seduced by ETFs that use exotic income-oriented strategies like writing covered calls or advertise other forms of “enhanced income,” but these are even less appealing in taxable accounts, because a lot of that income is return of capital, which means more adjustments to your cost base.

Plain-vanilla, broad-market index ETFs tend to pay little or no return of capital, and they often have fewer reinvested capital gains as well. All of which makes your bookkeeping more painless.

3. Don’t use US-listed ETFs. There are some clear advantages to using US-listed ETFs in RRSPs, including reduced foreign withholding taxes. But I don’t recommend them in taxable accounts if you’re looking to make life simpler.

In Canada, capital gains and losses must be reported in Canadian dollars. That means if you buy a US-listed ETF, you need to track its cost base in Canadian dollars, and that means knowing the exchange rate on the settlement date of every transaction.

Online brokerages often do an incomplete job of tracking ACB with Canadian ETFs, but with US-listed ETFs they’re useless. The onus is entirely on you to look up the historical exchange rates when doing your calculations. Do you really want to inflict this on yourself to save a few basis points in MER?

4. Don’t use DRIPs. With a dividend reinvestment plan, or DRIP, you can have your ETFs’ distributions paid in new shares instead of cash. These plans are hugely popular with DIY investors, and they can indeed be convenient in TFSAs and RRSPs, because they keep more of your money invested and they keep your cash balance nice and small. But I suggest avoiding DRIPs in taxable accounts. This is because every reinvested dividend increases your ACB, which means more transactions to record. And if you don’t make these adjustments you may pay more tax than you need to.

I suggest simply taking the dividends in cash and reinvesting them once or twice a year when you’re adding new money and have to make a trade or two anyway. Many investors think this undermines the power of compounding, but as Justin Bender has shown, it will probably have a much smaller effect than you think.

5. Don’t open more than one non-registered account. There are good reasons to consolidate your accounts at one brokerage, at least as far as possible. This is particularly good advice with non-registered accounts. Remember that CRA doesn’t care where you hold your investments, so if you own, for example, 1,000 shares of an ETF in Account A, and another 500 in Account B, you need to accurately track the cost base of all 1,500 shares across both those accounts. Even if each brokerage did this correctly for the shares it holds (and that’s a big if) there is no way the aggregate book value is going to be accurate.

I have seen this happen with investors who use an advisor to manage part of their portfolio while also doing a little freelancing on the side. It’s problematic if these two accounts include the same security: if either you or your advisor sells all or part of the holdings chances are high that you’ll report the gain or loss inaccurately.

If you can’t avoid having multiple taxable accounts, at least take care to avoid holding the same ETF in more than one.


104 Responses to Ask the Spud: Can I Make Taxable Investing Easier?

  1. Adam B. January 26, 2017 at 9:09 am #

    I believe it is a good idea to track your ACB and calculating your yearly rate of return. There are many options for that. You can either build your own Excel spreadsheet or use free software.
    For example, if you want just to track your ACB, you can use:
    If you want to track your ACB and historical rate of return and dividends, use:
    If you want to track your investments using Google spreadsheets you can use:

  2. Willy January 26, 2017 at 10:14 am #

    Great advice. I have only one single joint unregistered account between my wife and I. I do use (one) US-listed ETF in there as I do not mind the exchange rate calculation – it’s not difficult, and probably consumes literally 60 seconds per year of clicking around the BoC website. 🙂 With a single account and one or two ETFs, it’s really no big deal. I can very easily appreciate how, with 10 securities and multiple accounts, DRIPs, etc., this would become a nightmare. The only winner is the accountant!

  3. Ali January 26, 2017 at 1:01 pm #

    Thanks for the informative article. I’m in a similar place to that reader- almost maxed out RRSPs and TFSAs and mortgage is now paid off.

    My question is- for a married couple, should the non-registered account be joint, or should each individual have their own account?

  4. Peter January 26, 2017 at 1:04 pm #

    In point #2 you say not to use exotic ETF’s. Would you classify the Horizon swap ETF’s (HXS, HXT, and HBB) as exotic? They seem like ideal choices if you want to simplify ACB calculations.

  5. Canadian Couch Potato January 26, 2017 at 1:12 pm #

    @Peter: Swap-based ETFs are not particularly exotic, but in my opinion ease of ACB tracking is not the right reason to use them. One needs to understand how they work, and the additional risks. And that’s not a road I wanted to go down in a discussion of making things simple for new taxable investors.

  6. Dean January 26, 2017 at 3:49 pm #

    For point #3, another big reason to avoid US-listed ETFs in taxable accounts is the nuisance T1135 form. Once a person has over $100k CDN cost invested in “specified foreign property” (SFP) they must file this silly informational form with their tax returns. The fines for failing to file or filing late are HUGE, even when a persons taxes were paid off correctly and on time. The last time I checked it was $25/day late filing penalty to a maximum of $2500 per tax year. If a person held over $100k CDN cost in SFP for seven years and failed to file the T1135 form, then in theory that would result in over $17,500 in potential penalties and arrears interest.

    This form is also a pain in the butt to fill out, although it has improved a little lately. If you get an accountant to figure it out for you the accounting fees could be almost as large as the fines and any cheaper MER advantage will be erased quickly.

  7. JohnB January 26, 2017 at 4:02 pm #

    I liked your post so I went to TD’s e-fund website and looked at the Managed Index Balanced Growth fund.
    The fund contains 4 other index funds and has an MER of 1.27%. I could mimic the fund by buying 4 Vanguard ETF’s with a combined total MER of about 0.25%. I’m not sure the simplicity of the mutual fund is worth 1% of my portfolio every year. Thoughts?

  8. Canadian Couch Potato January 26, 2017 at 4:06 pm #

    @John B: I don’t recommend the Managed Index Funds at TD. My comments referred to the individual e-Series index funds, which are far cheaper.

  9. Koen January 26, 2017 at 9:49 pm #

    Thanks for the article. I was thinking about opening non-registered accounts for my kids and invest their savings in some ETF’s (I’m maxing out their RESP’s already) but it seems like this is going to give me a lot of extra work and headaches figuring out taxes.
    I might have to look into other options to keep life simple but there doesn’t appear to be any (other than a savings account which generates peanuts).

  10. Sam January 27, 2017 at 1:00 am #

    I have VCN, XAW, and VAB in a non registered account. I’ve never dealt with ACB before and don’t think I have time to tackle it this year. But I’ve never sold any of this portfolio, so I’m thinking any changes are negligible so I can ignore it this tax season. Any thoughts on this?

    I was thinking of eventually selling VAB and getting ZAG instead, but this will require me to deal with ACB, or do bond ETFs not require dealing with ACB?


  11. Marni Alexander January 27, 2017 at 9:48 am #

    Thanks so much, your knowledge and advice is always so helpful. I have VXC in a joint non-registered account with my husband and also in my own non-registered account. If I sell some VXC, do I need to take into account the joint account, and include 50%? Your advice on not having more than one account is very good, and I am going to slowly collapse the joint account. Thank you for your help.

  12. Canadian Couch Potato January 27, 2017 at 2:06 pm #

    @Marni: That’s an excellent question, and a great example of how this can get complicated. Let’s look at an example:

    • Joint account holds 1,000 shares with a cost base of $20 each ($20,000)
    • Personal account holds 500 shares with a cost base of $21 each ($10,500)

    So, is your cost base calculated using all 1,500 shares, like this?
    ($20,000 + $10,500) / 1,500 = $20.33

    Or only using 1,000 shares, with the assumption that you own only half the shares in the joint account?
    ($10,000 + $10,500) / 1,000 = $20.50

    I think it would be the latter, but that’s a question for a tax specialist. 🙂

  13. Potato January 27, 2017 at 4:44 pm #

    @Ali and @Marni: Joint accounts cross the streams of what you “should” do in terms of your relationship and in terms of making your lives as investors easier. However, they are an absolute nightmare when it comes to doing your taxes. For a chequing account, fudging it and saying 6 cents of interest is yours and 6 cents is your spouse’s isn’t going to be too far off (and the amounts are tiny and don’t involve much tracking), so if you need a joint account for relationship reasons, it’s not such a huge deal for a bank account.

    For investment accounts though, Dan’s pointed out the main complexity: there’s no “joint” tax return, and you can’t just tell the CRA that it’s joint money and call it even (and you really can’t just put it all on the return of whoever’s earning less that year). Your investments will get attributed back to who paid for them. So if you have 1000 shares with a cost base of $20 each, it may not be that you each have 500 shares with a cost base of $20 unless you were very careful in how you put money into the account. If your spouse put in $9000 in January and bought 600 shares at $15 each, and you put in $11000 in October and bought 400 shares at $27.50 each, your overall book value in the account (what you see on the brokerage’s screen) will be 1000 shares with a cost base of $20 each, but your individual cost bases may be nowhere close to that…

    I’m a huge fan of keeping accounts separate to keep things simpler, but that separation also happens to work for me and my family dynamic… it’s always possible that you’ll really want a joint account for relationship reasons, and find that a tax specialist/bookkeeper may be cheaper than a marriage counselor.

  14. James January 27, 2017 at 5:22 pm #

    @Potato: Seems like another good reason for me to pay off my mortgage first before investing in non-registered accounts.

    What a headache! 🙂

  15. sue crispin January 28, 2017 at 4:24 pm #

    Woud XAW be considered a tax efficient ETF for a taxable account such as a corporate account?

  16. Josh January 29, 2017 at 5:02 am #

    Hello Dan,

    After Canadian equity what plain vanilla ETF would be next out of registered accounts? I believe you wrote an article a few years ago mentioning a Canadian listed US ETF was the way to go due to it’s relatively low dividend yield. However now that ZDB exists would it be more tax-efficient (leaving US and international equities to grow in sheltered accounts)? Do bond or equity ETFs vary greatly in the amount of book-keeping required when tracking return of capital or reinvested capital gains in a non-registered account?


  17. Canadian Couch Potato January 30, 2017 at 8:55 am #

    @Josh: Either US equities or a tax-efficient bond ETF could be appropriate in a non-registered account. As always, it depends on the individual circumstances. Regarding the amount of bookkeeping required, you’re usually fine if you stick to broad-market funds that don’t have built-in strategies around generating income.

  18. Canadian Couch Potato January 30, 2017 at 9:01 am #

    @sue: XAW can be a fairly tax-efficient fund, but the question needs to be considered in context. Tax-efficient compared to what alternative?

  19. Sue C January 30, 2017 at 11:18 am #

    Hi Dan,
    thanks for your response. Tax efficient as compared to corporate class funds or a tax efficient balanced fund such as what Mawer sells

  20. Sue C January 30, 2017 at 11:20 am #

    Another question- do most brokerages not keep track of ACB’s for their client non-registered accounts or does it depend on the brokerage/institute?

  21. Canadian Couch Potato January 30, 2017 at 12:27 pm #

    @Sue C: Corporate class funds have some potential tax-efficiency but their benefits are usually outweighed by their excessive costs. With the recent changes to tax rules they are even less appealing than they were before. Balanced funds aren’t really an apples-to-apples because they contains bonds and Canadian equities, neither of which are included in XAW. Sorry if my answers sound vague, it’s just that the details mean everything.

    All brokerages report ACB, it’s just that their numbers are not always accurate.

  22. John R January 30, 2017 at 1:31 pm #

    Am I missing something here. I believe RBC online sends a summary every year for my non registered investments with capital gains/losses on them. I just give this to my bookkeeper. Is this summary not accurate or do they have calculations to make?

  23. Canadian Couch Potato January 30, 2017 at 2:16 pm #

    @John R: In most cases this summary will be accurate, but not necessarily, especially with ETFs. The brokerage will be the first one to admit that it is provided “for information purposes only,” as brokerages are not ultimately responsible for tracking ACB. For what it’s worth, RBC Direct does seem to do a better job than most in adjusting for return of capital, etc. But on a large transaction I’d still double-check it.

  24. Chris January 31, 2017 at 11:08 am #

    Great article and my wife and I just called and shut off the DRIP in each of our non-registered accounts this morning. Interestingly I was just creating spreadsheets tracking the cash deposits and ETF purchase history in each account going back to when we started them. I have NOT tracked the shares accumulated via the DRIP do you think I should be? Also each year I saw the return of capital adjustment noted in the April statement and do I need to make a note of this for long term when I am selling? Currently we hold only XIC in our accounts but as they are growing rapidly will need to start adding US/International equity and was planning on buying XAW or VUN/XEF. Thoughts on which would be better for our non-reg accounts?

  25. Pierre February 1, 2017 at 2:27 am #

    Hi Dan,

    Would I need to track ACB across my registered & unregistered accounts?

    Say I have XIC in my RRSP/TFSA, and then start buying XIC in my new unregistered account. Does having the same security in registered accounts have any impact on the ACB calculation, or is XIC in the unregistered account treated separately?

    I was thinking of using VCN in the unregistered account to take care of that issue…


  26. Canadian Couch Potato February 1, 2017 at 9:56 am #

    @Pierre: No need to track your ACB in registered accounts.

  27. Ed February 1, 2017 at 4:38 pm #

    Really good article–glad I read it! I have a TD Non-Registered mutual fund account and a TD Direct Investing account. Thankfully don’t have the any of the same security held in both. If I had, the ACB across the two accounts is something I probably wouldn’t have considered. Thanks, Dan!


  28. John Smith February 2, 2017 at 9:21 am #

    About 80% of my investments are in a non-registered account.

    I used to have a portfolio of over 10 to 20 individual actions and ETFs…. and it was a nightmare at tax time.

    My solution: a single balanced mutual fund for all non-registered investments.

  29. Laurent February 3, 2017 at 12:29 pm #

    Hey, long time reader, thanks for everything.

    Regarding taxable investment, I was wondering how do you see asset “location”. I’m aware of the tax advantage of having your canadian equity in taxable because of the tax credit on dividend, but how do you rebalance if the rest of your asset are in a taxable account, like a RRSP?

    Do you suggets having the same allocation in all accounts (TSFA, RRSP and Taxable) and treat all of them individually when it comes to rebalance?

  30. Max Thunder February 3, 2017 at 2:51 pm #

    The real question to all this is why can’t online brokers do a better job at tracking those numbers?

    This said, I’ve held DRIPed REITS (XRE) in an unregistered account before, with iTrade, and found that every number provided by the broker was the right one (despite having had returns of capital and reinvested dividends). It seems pretty straight forward to calculate (although a pita), so I don’t understand why brokers would have any trouble with it unless they purposefully chose to ignore DRIPs and ROCs.

  31. Paul G February 3, 2017 at 4:45 pm #

    @Laurent: There’s no need to have every asset class in every account, though in practical terms I find it’s best to have some cash or bonds in every account to make rebalancing possible. Multiple accounts are a pain to manage though.

    There are many blog entries about asset location, you should be able to find some answers by going through the site and finding older entries.

    Also, the dividend tax credit is real nice and all, but it’s far better to pay no tax at all in an RRSP (and have tax-free compound growth) than to pay some tax yearly in an unregistered account. It’s always better to do the math though and figure out how it applies to you in your specific tax bracket and circumstances.

  32. Oldie February 3, 2017 at 7:35 pm #

    @Paul G: No tax now does not necessarily net you the greatest return — depending on the circumstances, it may work out that in a non-registered portfolio the favourable tax you pay up front on dividends from a plain vanilla Canadian Equity index ETF might be low enough to beat the net outcome after the eventual tax you pay on the capital gains (even at 50% of the marginal rate) on HXT growth when that portfolio cashes out, particularly if the cash out is uncontrolled and large (think like on death and liquidation of estate and residual of portfolio) and therefore at the highest marginal tax rate.

  33. Paul G February 3, 2017 at 8:49 pm #

    @Oldie: Yeah, it can get complicated… but my point was just that leaving assets in unregistered savings to get the dividend tax credit isn’t usually a winning proposition. I think the math works out that within 3 to 5 years, registered is worthwhile for most people.

  34. FritesPaul February 3, 2017 at 10:21 pm #

    Great articles and podcast. In similar vein to Sam’s question above: have a maxed out RRSP/TFSA account and so interested to keep my taxable investment account as efficient as possible come tax season. Contrary to your latest podcast, I have ~10 ETFs (first 4-5 I bought had high MERs compared to whats being offered now) and they are all DRIPs.

    1) Is it really worthwhile to sell off the more expensive ETFs or just contribute to my more preferable ones? If I sell them to save a little bit on MER (0.35% c/w 0.12% for example) I would have to pay capital gains, and as you know, its been a fairly profitable 2-3 years.
    2) I haven’t actually sold any funds in 2-3 years, I rebalance the porfolio (a la your model portfolio) by contributing to the lesser achieving funds q2-3 months. In that case is it really worthwhile to calculate the ACBs if I’m not actually receiving any funds from capital gains?


  35. Donna February 4, 2017 at 10:01 pm #

    Hey Dan. Is it more advantageous to add capital to the couch potato portfolio once a year at re balancing time or, on a monthly basis or whenever extra cash is available?

    Thanks so much!

  36. Canadian Couch Potato February 5, 2017 at 1:22 pm #

    @FritesPaul: It probably doesn’t make sense to realize capital gains just to simplify your ACB calculations. But you do need to track the ACB for all of these funds even if you are not planning to sell them imminently. You will need to sell them eventually and I wouldn’t to have to go back and calculate the ACB for many years: better to stay on top of it now. If you find your brokerage is doing it correctly, then perhaps you don’t need to do too much going forward.

  37. Canadian Couch Potato February 5, 2017 at 1:27 pm #

    @Donna: I’d suggest contributing as soon as you have the cash, as long as you are not paying too much in commissions by making a lot of small ETF trades.

  38. Darren February 5, 2017 at 3:56 pm #

    Hi CCP,

    I have the TD e-series index funds in my non-registered account with a DRIP. Your post above seems to talk a lot about the headaches at tax time for ETFs, and from reading your other posts, I understand that it’s much easier to manage in the case of index funds.

    I gather that I should be expecting to get a T3 (I live in Ontario) that shows what type of income to report in what box of my tax return.

    What I’m not sure is how to calculate my ACB on the index fund to make sure that down the road, I don’t pay extra tax… Is it just the sum of my contributions and my DRIP that I need to consider in my ACB calculation? Do I need to care about capital gains and ROCs on index funds?

    Any help is much appreciated!

  39. Canadian Couch Potato February 5, 2017 at 4:33 pm #

    @Darren: Yes, you will receive T3 slips for your e-Series funds and you’ll need to report these on your tax return. But you don’t need to worry about any ACB adjustments at all, because these are all done at the fund level. That’s why I mentioned these funds as an alternative to ETFs in a taxable account: the bookkeeping is much easier.

  40. Jungle February 5, 2017 at 7:45 pm #

    I would just use HXS, HXT and HBB. XEF until horizon’s comes out with a better international index etf and not just euro stoxx 50 like they just did.

  41. melwin February 6, 2017 at 2:01 am #

    @CPP, Great content, I am glad to have found it at the right time! I am a new immigrant and have very little room for tax-sheltered investments. I am looking to invest around 80k CAD that includes 28K in USD. With a balanced portfolio in mind, my US equity exposure should be around 16K (roughly 12K USD). I think I can use TDB952 (U$) for US equity component. I was wondering if there are any TSX-listed index funds (or ETF) that are denominated in U$ for filling other components. Or would converting U$ be best if I were to keep my taxable portfolio simple? I no longer have U$ source of income.

  42. Canadian Couch Potato February 6, 2017 at 8:23 am #

    @melwin: Unless you have a specific need to hold USD, it probably makes sense to convert it to CAD and simplify your portfolio going forward. There are USD-denominated ETFs you could use, but I don’t think it’s worth it.

  43. Brian February 6, 2017 at 9:15 am #

    Question about superficial losses. If you sell an aggregate ETF at a loss can you purchase any of the smaller ETFs it contained and still claim the loss?

    Is there any single ETF similar to XAW but using different indexes or would you be forced to get a US equity and a global-NA ETF?

    I really appreciate the website Dan. You’ve made an incredibly daunting task very easy to understand and your commitment to answering peoples questions here is amazing. Thanks for all the help.

  44. Canadian Couch Potato February 6, 2017 at 9:34 am #

    @Brian: Thanks for the comment. If you sell an aggregate ETF and buy the underlying ETFs I cannot imagine that would be considered “identical property.” (That said, you probably shouldn’t be holding these ETFs in taxable accounts!)

    Vanguard’s VXC provides very similar exposure to XAW while tracking different indexes.

  45. Brian February 6, 2017 at 10:47 am #

    “That said, you probably shouldn’t be holding these ETFs in taxable accounts”

    Because of the added complexity of having more ETFs to track or is there something else I’m missing?

  46. Brian February 6, 2017 at 2:23 pm #

    Ah yes, I chose ZDB for my taxable account, I imagine a swap based would’ve been a better choice but I wasn’t sure how much risk that’d add. My question was more about what to do in a scenario where XAW dropped significantly and wondering if I could buy a combination like VUN and XEF to cover those areas even if XEF contained similar assets to XAW.

  47. Alex February 6, 2017 at 3:54 pm #

    BXF return looks anemic these days.
    I prefer to hold cash right now in my taxable account, waiting for the correction
    Bought 170K of XAW at the beginning of the year
    Will buy much more as soon as we get a 10% drop
    TSX index is not buyable when you are in a position like me and need to invest a huge amount of money in the market at the same time. What can you do besides holding it in cash ?!

  48. Neil February 7, 2017 at 3:03 pm #

    Great website and good information here Dan.

    Do you have any experience or knowledge as to the accuracy of Nestwealth’s tax documents? The documents are generated by National Bank according to their support people.
    Do you know if they accurately track ACB in a non-registered account?

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