So, you’ve maxed out your Registered Retirement Savings Plan (RRSP), diligently contributing 18% of your income each year. Your Tax-Free Savings Account (TFSA) is brimming, even with the upcoming 2025 room of $7,000. You might have even tapped into your First Home Savings Account (FHSA) for a down payment. What’s the next move for your growing nest egg?
For many savvy investors, the logical progression is a non-registered account. These accounts offer a liberating lack of contribution limits and income restrictions, easily opened at any Canadian brokerage. However, this newfound flexibility comes with a trade-off: tax exposure.
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Interest, dividends, and capital gains earned in these accounts are taxable, and at varying rates. While Canadian dividends benefit from a tax credit and capital gains are only half-taxed, bond interest and foreign dividends face your full marginal tax rate.
The ideal strategy for taxable accounts centers on reducing, deferring, or eliminating these distributions altogether. This proves tricky, as most stocks issue dividends. While Berkshire Hathaway is a notable no-dividend stock, achieving broad diversification solely with such a holding is impractical.
Enter a specialized investment vehicle: swap-based corporate class Exchange-Traded Funds (ETFs). These are engineered for non-registered investors, aiming to sidestep taxable distributions. Here’s how they work and which ones can build a tax-efficient global equity portfolio.
What Exactly Is a Corporate Class, Swap-Based ETF?
The corporate class structure is unique. It houses multiple ETFs under a single legal corporation. Instead of each fund operating as an independent trust, they function as different share classes of one larger entity. This setup facilitates more efficient income flow between funds, crucially helping to minimize taxable distributions.
The real innovation lies in their holdings. Unlike traditional ETFs that directly own stocks or bonds, these ETFs utilize a financial contract known as a total return swap. This is essentially an agreement between the ETF and a major Canadian bank, the counterparty.
The ETF pays a set fee to the bank. In return, the bank commits to delivering the total return of a benchmark index. This includes both the index’s price fluctuations and any dividends it generates. This mechanism provides synthetic exposure to the index, mirroring the returns of direct ownership without actually holding the underlying securities.
Furthermore, the ETF provider can strategically settle these swaps at a loss with the counterparty. This action realizes a capital loss, which can be carried forward to offset future taxable gains, amplifying tax efficiency for investors. The corporate class structure also allows for the pooling of income and expenses across all the ETFs within its umbrella. Since each fund is a share class, not a separate entity, income from one can be offset by expenses from another, reducing the necessity for taxable income distributions.
This structure empowers investors to theoretically defer capital gains until they decide to sell, provided they rebalance their portfolios thoughtfully. This offers significantly more control over one’s tax liabilities.
Building a Tax-Efficient Global Equity Portfolio
For a well-rounded, tax-efficient portfolio in a non-registered account, a straightforward and proven allocation is key: 50% U.S. equities, 25% Canadian equities, and 25% European equities. This mix offers global diversification while prioritizing tax efficiency.
For the substantial U.S. equity allocation, the Global X U.S. Corporate Class ETF is a strong contender. It provides synthetic exposure to the S&P 500 through a swap. Its expenses include a 0.11% management expense ratio (MER), a 0.29% trading expense ratio (TER), and up to a 0.50% swap fee.
On the Canadian front, the Global X Canadian Corporate Class ETF stands out. It’s among Canada’s more cost-effective ETFs, with a 0.08% MER, no TER, and a swap fee capped at 0.20%.
To complete the global picture with European exposure, the Global X Europe 50 Index Corporate Class ETF is a solid choice. It tracks the 50 largest European companies and carries a 0.19% MER, 0.31% TER, and a swap fee of up to 0.50%.
Consider this hypothetical portfolio’s performance from January 2017 to July 2025, assuming no rebalancing. Rebalancing in a non-registered account often involves selling, which can trigger capital gains, hence its exclusion in this backtest.
A more practical approach to rebalancing involves using new contributions over time. Even without rebalancing, this diversified portfolio achieved a compound annual growth rate of 12.68%. A $10,000 investment grew to $27,858, all while sidestepping taxes on distributions.
This combination provides broad exposure to large- and mid-cap U.S., Canadian, and European stocks without the worry of taxable distributions. It omits emerging markets and some Pacific regions, but no ETF portfolio can cover every corner of the globe.
While these corporate class, swap-based ETFs have, to date, largely succeeded in avoiding taxable distributions, this isn’t guaranteed. The frequency of distributions for each fund is noted as being “at manager’s discretion,” a point to keep in mind.
