AltaRed wrote:George$ wrote: But alas as I grow older and will pass the responsibility to someone else - _I'm looking to get more Vanguard ETS. But my cap gains are substantial on my holdings - and I don't want to sell and pay taxes.
I think this is a dilemma for many of us here that have a lot of investments in taxable accounts.
And for those of us who want to simplify our investments, either to simplify our lives or (more importantly IMO) to simplify the lives of spouses and children who stand to inherit our complicated portfolios.
As I understand it, you can exchange identical stock on a capital gains tax deferred basis. Suppose you have VCE and want to convert to VCN. If Vanguard accepted shares of VCE, converted them into “creation baskets” of the underlying FTSE Canada shares, then converted those into shares of VCN, then the overlapping shares (
the top 78 shares that constitute 96% of VCE) should transfer to VCN on a capital tax deferred basis. Thus Vanguard could facilitate the conversion of shares from their original, relatively narrow indexes to the new, broader ones.
They could make a tender offer for shares of competitive ETFs for conversion to Vanguard's nearest, lower-MER equivalent. This would enable them to raise assets at their competitors' expense while at the same time helping us to reduce our costs.
I suppose they could also accept shares of underlying stocks from individuals who have positions in the top TSX stocks for conversion to ETF shares. This could incur some CG tax because the weights would be different from from the index. (Or maybe not so much if there was a general tender offer that lasted for some period of time that attracted "the market.") But in any case the immediate CG tax liability to the individuals would be a lot less than if they'd sold shares and used the proceeds to buy ETFs.
Now this would entail some bookkeeping hassles for Vanguard and for the individuals who tender shares. But I'd think that a spreadsheet from Vanguard would probably solve that issue.
Anyway, I'm just brainstorming... Perhaps there's some esoteric reason why this wouldn't fly with CRA. (Also recall my criticism of the Cons in promising to defer CG taxes when people sell one investment to buy another, then reneging on that promise. If only they'd followed through there would no longer be any need to brainstorm ways to convert from one ETF into a similar or even identical but lower-cost ETF.)
like_to_retire wrote:One of the reasons I dislike ETFs and switched to individual stocks is because it's so much easier to take care of tax wise. A simple T5 every year that I know the amount before I ever receive it, and it comes in lots of time before tax season. Contrast that with ETFs and their last minute T3's with re-invested distributions, non-eligible dividends, return of capital, capital gains, interest income, other income, regular dividends, ACB adjustments (add this, subtract that, no change to ACB).
Not all stocks. REITs and other trusts give rise to T3s that rival ETFs in complexity, lateness and errors.
But yes, I agree that this stuff results in tax reporting errors, especially double taxation of capital gains. The ETF sponsors could go a lot further to simplify this. For example they could provide a sample spreadsheet for tracking the ACBs of their ETFs, with the ROC and RD factors prefilled. They could also provide some guidance on how to track ACBs using Quicken, etc.
Sedulously eschew obfuscatory hyperverbosity and prolixity.