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  • Mar 10th, 2020 12:07 am
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[OP]
Deal Addict
Dec 3, 2014
2348 posts
1834 upvotes
Ontario

Swap based ETFs

I am looking to invest excess capital within my professional corporation. I have researched swap-based ETFs, particularly those offered by Horizon. All of the information is updated to 2019. The information from 2019 indicates that these swap based ETFs offer some tax advantages within a corp investment account. More particularly, it avoids dividend distributions so that the dividends effectively become more capital gains. This is advantageous because it is deferring the income that would otherwise come from dividends and capital gains are taxed more efficiently then dividends within a corporation.

The catch is that there was apparently discussion about the federal government making some changes in their proposed 2020 budget which would eliminate the advantage of these swap based ETFs for corporate investing. However, I am unclear on whether that proposal has actually been brought into effect and what the best play is going forward.

If anyone has any knowledge on this subject, I would be grateful to hear comments on this topic. Further, if anyone here invests in a pro corp, please feel free to send me a private message if you wish to discuss ideas.

Thanks in advance!
4 replies
Deal Addict
Jul 27, 2017
2180 posts
949 upvotes
ignoring the 2020 budget & seeing past performance including 2018 market dip, the ETF look good for 'tax efficient' capital gain only.

based on the 'past performance' of the ETF that they are able to continue at this pace, they don't correct or drop - then OK, but who knows what the future holds!

would you be long term in this & are you concerned either HXT or HXS may falter, waffle, even consolidate as they have done in the past?

do you have a hold period & an exit strategy?

what is it that you want from the excess capital in terms of returns - have you looked at alternatives?
[OP]
Deal Addict
Dec 3, 2014
2348 posts
1834 upvotes
Ontario
porticoman wrote: would you be long term in this & are you concerned either HXT or HXS may falter, waffle, even consolidate as they have done in the past?

do you have a hold period & an exit strategy?

what is it that you want from the excess capital in terms of returns - have you looked at alternatives?
Yes, this would be for long term. I view the strategy as a way to build a pension for the self-employed. I would accumulate and grow capital for the next 20-30 years in the corporation and then I can slowly distribute money out as dividends in retirement.

In terms of performance, I typically adhere to an 80/20 portfolio invested in total market stock and bond ETFS. For example, prior to now I have only invested in my TFSA (where I hold a few individual stocks, but mostly focus on VGRO) and my RRSP (where I also hold some individual stocks, but mostly focus on VTI and ZAG).

I would love to be able to just by VGRO in the corporate account for the simplicity; however, I would consider taking on some additional complexity for tax savings.
Deal Fanatic
User avatar
Jun 19, 2009
6111 posts
1975 upvotes
Scarborough
Anyone who had shares of the affected Total return swaps ETFs were given a tax package in 2019 to elect a tax free rollover (85.1) into corporate class mutual fund shares of the same holding. IIRC by the end of 2020, the total return swaps will all be converted to these new shares. There's a topic on it somewhere in this section of the investing subforum.
Deal Fanatic
May 23, 2003
9813 posts
1286 upvotes
GTA
Did you end up finding more information on the new Horizon ETFs and use in corporate account? I was thinking of doing the same before but then they came out with a notice they were changing them and they have released those new products in 2020. I picked up some of the Horizon Cash Maximizer ETF. Originally return rate was at 2.25% less .18% management fee but has since dropped because of rate cuts :

https://business.financialpost.com/inve ... an-history

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