Should you sell stocks to simplify with an all-in-one ETF?

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I have a mixed bag of stocks in my TFSA, RRSP, corporate trading account, and in my non-registered accounts.

I am in my mid-50s and looking to simplify my portfolio. I would like to sell all positions within each account and deploy a 2 to 3 ETF portfolio. Am I able to sell off everything to purchase VEQT and a bond ETF, or will I be penalized (taxed) on the approximately $1 million in stocks?

–Brad

Some investors buy only stocks, others buy only exchange-traded funds (ETFs), and yet others use a combination of the two. Both can be a viable way to build a portfolio. Let’s look at each one, starting with stocks—specifically, the tax implications of selling stocks in tax-preferred versus non-taxable accounts. 

Selling stocks in tax-preferred accounts

When you sell stocks in a tax-free savings account (TFSA), there are no tax implications, Brad. There is no tax to sell a stock for a profit, nor tax savings to sell a stock for a loss.

There is no tax to withdraw from a TFSA, either. The only tax that may apply within a TFSA is withholding tax on non-Canadian dividends earned, ranging from 15% to 25%. This withholding tax happens at the source, either before the dividends are earned by a mutual fund or an ETF, or, for a stock, by the brokerage before the dividend is credited to your account.

U.S. withholding tax does not apply to U.S. dividends earned directly in a registered retirement savings plan (RRSP), registered retirement income fund (RRIF), or other similar retirement accounts. The “earned directly” reference means that the U.S. stocks are owned directly by you and trade on a U.S. stock exchange. A U.S. dividend earned indirectly from a stock owned by a Canadian mutual fund or ETF will have withholding tax before the fund receives the net income.

Stock sales within an RRSP or a RRIF are also free from tax implications, Brad, so there is no tax to sell for a profit nor tax savings from selling at a loss. RRSP and RRIF withdrawals are generally considered taxable income. There are exceptions for eligible Home Buyers’ Plan (HBP) withdrawals for a first home purchase and Lifelong Learning Plan (LLP) withdrawals for eligible post-secondary education funding. 

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Selling stocks in taxable accounts

Non-registered personal accounts and corporate investment accounts are considered taxable investment accounts. This means the income earned from owning investments, as well as the profit or loss resulting from selling them, are relevant.

Non-registered personal accounts

When you sell a stock in a non-registered account, one-half of the capital gain is considered taxable income. Personal tax rates range from about 20% to over 50%, with higher tax rates applying at higher levels of income. Rates vary by province or territory of residence. So, the tax payable on the total capital gain is generally 10% to 25% (20% to 50% of the taxable capital gain). 

Corporate investment accounts

When you sell a stock in a corporate investment account, one-half of the capital gain is taxable at around 50%. That means the total tax payable is about 25% of the capital gain. There are no marginal tax rates for a corporation, so the same tax rate applies whether the corporation’s income is $1 or $1 million. There are slight tax rate differences between the provinces and territories.

One-half of a corporate capital gain is added to a corporation’s capital dividend account (CDA). That is a notional account that tracks a balance that can be paid out tax-free to the shareholders. Thirty-one percent of a taxable capital gain is also added to another notional account balance called refundable dividend tax on hand (RDTOH), which can be refunded to a corporation when it pays out taxable dividends to its shareholders. 

Offsetting capital gains with capital losses

When you sell an investment at a loss in a taxable account, personally or corporately, the loss can be used to offset other capital gains. You must first reduce capital gains in the current tax year. If your losses exceed your gains in the year, you can carry your net capital losses back to offset capital gains in the three previous years or carry them forward to offset future capital gains. 

The benefits of tax deferral

There are benefits to tax deferral. If you can avoid selling investments in taxable accounts, which triggers tax, you can have more tax-deferred capital invested to grow over time.

When you have more capital invested and those investments pay dividends, you can earn more dividend income as well.

So, there are definite benefits to deferring tax, though investment strategy should be a primary consideration before tax. There can also be benefits to triggering strategic capital gains when an individual’s tax rate is low, especially if withdrawals are anticipated in the near term or their tax rate could be higher in the future.

Benefits of diversification and simplification

A portfolio may need at least dozens of stocks to be properly diversified. By comparison, an ETF may have hundreds of stocks or, in the case of an ETF like the VEQT (Vanguard All-Equity ETF Portfolio traded on the TSX) investment you are considering, thousands of stocks. So, you can significantly reduce single-stock risk—the risk of a single holding being volatile or performing terribly—with ETFs.

The other advantage of ETFs is you do not need to worry about portfolio management. You could buy an ETF like VEQT and hold it forever and not need to worry about monitoring the performance of the underlying stocks in your portfolio. As a result, ETFs can provide a simple way to invest that some investors value.

Tools

MoneySense’s ETF Screener Tool

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Portfolio construction with ETFs

Although you could mix VEQT with a bond ETF, Brad, you may not need to do so. Vanguard offers all-in-one ETFs with thousands of global stocks combined with bond exposure. For example:

VEQT has a 0% bond allocation, but each of the above funds has incrementally higher bond and incrementally lower stock allocations.

Large ETF providers like iShares, BMO, Global X, TD, and others offer their own all-in-one ETF solutions.

You can also build your own ETF portfolio buying Canadian, U.S., and international stock ETFs. As an example, here is the current breakdown of VEQT as of June 30, 2025:

Before you switch from stocks to ETFs…

Selling stocks in your corporate or non-registered account will have tax implications, Brad. This is not a consideration in your TFSA or RRSP.

Paying some tax to move from stocks to ETFs could simplify the management of your portfolio. Whether triggering significant tax to do so is the right decision depends on your desire to reallocate your portfolio, and your time horizon for taking withdrawals.

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More from Ask a Planner: 

• How is investment income taxed in Canada?
• How to handle a stock with a huge capital gain
• How to manage your tax withholding in retirement
• When and how should I start drawing on my retirement savings?

The post Should you sell stocks to simplify with an all-in-one ETF? appeared first on MoneySense.

Jason Heath, CFPSource