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Avoiding capital gains tax when exchanging one stock for another

Personal Finance & Money Asked by wispi on December 5, 2020

From observation, it seems like an ETF fund manager can buy and sell assets while avoiding a capital gains tax. However, if I were to do that, I would be taxed each time I sold (and thus missing out on potential return due to the time value of money).

Is it correct that fund managers can avoid capital gains taxation when they rebalance their porfolios? If so, how can an individual do the same and what evidence exists regarding the tax advantages of an ETF only portfolio compared to a stock only portfolio?

For reference, I am in Canada.

One Answer

ETFs are structured to minimize capital gains distributions via "in-kind" transactions involving an Authorized Participant. These are not considered sales.

Fund managers of mutual funds and individual investors are not entitled to such protection from taxation.

Answered by Bob Baerker on December 5, 2020

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