Divorced my broker and optimizing my accounts. Canada specific review.

[distracted_at_work]

The folks at Toronto Dominion (TD) pissed me off for the last time and I have finally moved over to Questtrade, Canada's lowest cost broker with free ETF buys. I've been reading lots of Canadian Couch Potato regarding withholding taxes and Norbert's Gambit and want to double check that I understand everything correctly before I incur commissions to "fix" my accounts once and for all. Related reading: Withholding Tax, Asset Allocation. In summary, my international holdings are subject to a 15% tax on dividends that adds about 0.2 - 0.35 % tax drag to my ETFs. These are recoverable in certain accounts and in certain ways.

My desired portfolio, which I'm open to changing having discovered Tyler9000 and everything he does.... is 33% U.S.A, 33% International Developed (I do not trust undeveloped country companies and think the developed ones will lead the charge here anyway) and 33% Canadian. I manage the 33% in Canada, ie. do not index. 100% equities cause I'm bold and young.

TFSA (Tax-Free Savings Account): I'm maxed out and it currently holds my U.S.A total stock market index (Ticker: VUN.TO) and my International Developed total stock market index (Ticker: VIU.TO). From my reading.. it would be optimal to hold my growth Canadian Equity here. Tax-free growth. Unrecoverable withholding tax in TFSAs so I don't love holding my International Developed here but I can't find another place for it. Obviously being tax-free beats saving a few measly basis points. I have half a mind to move my TFSA all over to Canadian Equity and then use my CASH account to catch up with my VIU allocation.

RRSP (Registered Retirement Savings Plan): Also maxed out. It currently holds my Canadian equity. I want to perform Norbert's Gambit to convert this account to USD and buy VTI. This should save me the 15% foreign tax on U.S.A dividends and something like .35% in MER total. This account will hold exclusively total market U.S.A as it can only hold 18% of my income. Tax-free growth.

CASH: Currently holds the left-over Canadian equity used to maintain my 33/33/33 split as well as a significant amount of cash. This account performs best with Canadian registered dividend payers for a 50% back tax-credit on dividends followed by both U.S.A and International indexes as I can claim back the withholding tax on my annual tax return.

In summary, TFSA is for Canadian Equity, RRSP is for U.S.A equity in USD and lastly, CASH is to make up the difference to maintain the desired global allocation with an eventual preference towards Canadian dividend payers to take advantage of the tax credit. In reality, my CASH account will be for buying International Developed & U.S.A for the rest of this year until my allocation catches up. Does this jive? Am I putting too much thought into avoiding foreign withholding taxes or does this make sense? For what it's worth, the rest of the world has greatly outperformed Canada so I could use a re-balance in that direction anyhow.

Help from a fellow Canuck would be much appreciated.

[BlueNote]

I have a very similar situation.

Questrade is my broker and I've done Norbert's gambit with them numerous times.

One thing to note is that Questrade requires your CAD to USD and USD to CAD norbert's gambit trades to settle before you can start trading in the new currency. So you'll have to wait about 3-4 business days (in my experience) before your money will be liquid again in the new currency. A small liquidity risk I suppose but if your doing DCA it all averages out in the end.

Let me know if you want my tried and true method of doing Norbert's gambit with them, it's pretty simple.

[distracted_at_work]

@BlueNote. That'd be much appreciated if you don't mind. Thank you.
If you'd rather PM me that'd be fine.

I've realized I should have identified my CASH account as my lone non-registered account to make it sound less confusing.

I'd also add a question, maybe, to a non-Canadian maybe reading this. Does the logic of optimizing my accounts for what I know I can control make sense? That's essentially my goal here.

[Ontarian]

Hi distracted_at_work, welcome to Questrade! I've been using it for a couple years now and have liked it.

I'd recommend you hold your Canadian equities in your taxable account (Questrade's name is Margin). This document (including its appendix), has information which has guided me in where to hold securities: https://www.pwlcapital.com/pwl/media/pw ... f?ext=.pdf

Oh, I realize you've already linked to that pdf. But yeah, if your TFSA & RRSP are full with non-Canadian investments, hold your Canadian ones in the taxable account. Hold US ones in RRSP. International in TFSA (no great place to hold International, but be sure to purchase ETFs which hold the stocks directly - often the best option is to buy the US-listed ETF, not the Canadian one which just holds the US-listed one).

Fired this off in the last bit of my lunch break. Read that PDF more and the ETFs it recommends (though I don't hold any of them anymore). I can share which ones I hold if you're interested to hear.

[distracted_at_work]

@Ontarian. Glad to hear you've liked it.

With VIU I am holding the stocks directly. What I will do I think is a re balance and large USD conversion to USD to buy VTI in my RRSP. Then to make up the rest of my usa allocation, I'll hold VUN in my TFSA. Then my margin account will be exclusively for my Canadian equities to take advantage of the dividend tax credit.

I would be interested to know what ETFs you are using sure. Part of me is ready to say screw all this and buy XAW (Global Ex-Canada) to save all the hassle. This is not the ERE way, however.

[distracted_at_work]

Actually.... the more I research and think about it. Going with XAW in my registered accounts and hand-picked Canadian equity in my non-registered kind of does make sense. My all-in, withholding tax + MER, on XAW in my registered accounts would be 0.5%. Going through the hassle to optimize and pick the perfect ETF blend to achieve the same results saves me...0.31%. At my portfolio level that currently works out to under $300/year in savings.

Sorry for talking to myself on the internet but I think typing this out helped.

[BlueNote]

Actually.... the more I research and think about it. Going with XAW in my registered accounts and hand-picked Canadian equity in my non-registered kind of does make sense. My all-in, withholding tax + MER, on XAW in my registered accounts would be 0.5%. Going through the hassle to optimize and pick the perfect ETF blend to achieve the same results saves me...0.31%. At my portfolio level that currently works out to under $300/year in savings.

Sorry for talking to myself on the internet but I think typing this out helped.

That's basically the same conclusion I came to for international exposure (I use VXC but almost the same thing). Simplicity and convenience trumped the small fee I was paying. However now that I'm maxed out the withholding taxes are becoming significant and I'm thinking about optimizing my withholding taxes per the aforementioned PWL PDF.

Norberts Gambit

I use the method documented here to exchange USD to CAD and CAD to USD cheaply: https://www.moneygeek.ca/weblog/2013/10 ... questrade/

Be aware of tax consequences when doing this in a non-registered account: http://canadiancouchpotato.com/2015/02/ ... ts-gambit/

[distracted_at_work]

Great links thanks BlueNote.

I think I'm going to slowly switch my registered holdings over to XAW over the next couple of weeks. It's slightly more efficient than VXC as it holds an Canadian -listed ETF that holds international stocks directly as opposed to a U.S-listed ETF holding those same international stocks. It'll be a few years at least before I'm into multiple six figures and start to feel the pinch of those withholding taxes.The simplicity is worth more to me right now.

[BlueNote]

@distracted_at_work: No problem. The comments in the both articles have a ton of useful tips and details as well.