Why you need a substitute ETF
The superficial loss rule denies your capital loss if you (or an affiliated person) buy the same or identical property within 30 calendar days before or after the sale. The workaround: buy a substitute ETF that provides similar market exposure but is considered a different security.
A good substitute should:
- Track a different index (e.g., S&P/TSX vs. FTSE Canada)
- Be from a different fund manager (e.g., iShares vs. Vanguard)
- Cover the same asset class (same geography, similar market cap)
- Have comparable MER and performance
The CRA has never published a definitive test for "identical property," but different indices from different providers are widely accepted as non-identical by tax practitioners.
Canadian equity substitutes
| Sell | Buy instead | Index tracked | MER |
|---|---|---|---|
| XIC (iShares) | VCN (Vanguard) | S&P/TSX Capped → FTSE Canada All Cap | 0.06% → 0.05% |
| VCN (Vanguard) | XIC (iShares) | FTSE Canada All Cap → S&P/TSX Capped | 0.05% → 0.06% |
| ZCN (BMO) | VCN or XIC | S&P/TSX Capped → FTSE or S&P/TSX | 0.06% → 0.05% |
| XIU (iShares, S&P/TSX 60) | VCN (broader) | S&P/TSX 60 → FTSE Canada All Cap | 0.18% → 0.05% |
Note: XIC and ZCN both track S&P/TSX indices from the same index family — some practitioners consider these potentially "identical" even though the managers differ. VCN (FTSE index) is the safest swap for either.
US equity substitutes
| Sell | Buy instead | Index tracked | MER |
|---|---|---|---|
| XSP (iShares, hedged) | VFV (Vanguard, hedged) | S&P 500 CAD-hedged → S&P 500 CAD-hedged | 0.10% → 0.09% |
| XUU (iShares, unhedged) | VUN (Vanguard, unhedged) | S&P Total Market → CRSP US Total Market | 0.07% → 0.16% |
| VFV (Vanguard) | ZSP (BMO) or XSP | S&P 500 → S&P 500 | 0.09% → 0.09% |
| ZSP (BMO) | VFV (Vanguard) | S&P 500 → S&P 500 | 0.09% → 0.09% |
Hedged vs. unhedged: Switching between hedged and unhedged versions (e.g., XSP → VUN) is an even safer swap since the returns differ due to currency exposure. However, this changes your risk profile.
International equity substitutes
| Sell | Buy instead | Index tracked | MER |
|---|---|---|---|
| XEF (iShares) | VIU (Vanguard) | MSCI EAFE IMI → FTSE Developed All Cap ex-NA | 0.22% → 0.22% |
| VIU (Vanguard) | XEF (iShares) | FTSE Developed ex-NA → MSCI EAFE IMI | 0.22% → 0.22% |
| XEC (iShares) | VEE (Vanguard) | MSCI Emerging Markets IMI → FTSE Emerging Markets | 0.26% → 0.24% |
| VEE (Vanguard) | XEC (iShares) | FTSE Emerging Markets → MSCI EM IMI | 0.24% → 0.26% |
| ZEA (BMO) | VIU or XEF | MSCI EAFE → FTSE or MSCI | 0.22% → 0.22% |
Fixed income substitutes
| Sell | Buy instead | Index tracked | MER |
|---|---|---|---|
| ZAG (BMO) | VAB (Vanguard) | FTSE Canada Universe → Bloomberg Aggregate | 0.09% → 0.09% |
| VAB (Vanguard) | ZAG (BMO) | Bloomberg Aggregate → FTSE Canada Universe | 0.09% → 0.09% |
| XBB (iShares) | VAB (Vanguard) | FTSE Canada Universe → Bloomberg Aggregate | 0.10% → 0.09% |
All-in-one portfolio ETF substitutes
| Sell | Buy instead | Type | MER |
|---|---|---|---|
| XEQT (iShares) | VEQT (Vanguard) | 100% equity, global | 0.20% → 0.24% |
| VEQT (Vanguard) | XEQT (iShares) | 100% equity, global | 0.24% → 0.20% |
| XGRO (iShares) | VGRO (Vanguard) | 80/20 equity/bond | 0.20% → 0.24% |
| VGRO (Vanguard) | XGRO (iShares) | 80/20 equity/bond | 0.24% → 0.20% |
| XBAL (iShares) | VBAL (Vanguard) | 60/40 balanced | 0.20% → 0.24% |
| VBAL (Vanguard) | XBAL (iShares) | 60/40 balanced | 0.24% → 0.20% |
Warning: All-in-one ETFs from the same provider (e.g., VGRO and VEQT) are clearly different securities. But swapping XGRO for VGRO — while widely accepted — involves some uncertainty because the underlying allocations are very similar. The different provider and different index family provide protection.
Rules to follow when swapping
- Different fund manager: Always swap to a different provider (iShares ↔ Vanguard ↔ BMO)
- Different index family: Prefer different index providers (S&P ↔ FTSE ↔ MSCI ↔ CRSP)
- Sell first, buy second: Sell the losing position, then immediately buy the substitute. This avoids any overlap where you hold both simultaneously.
- Document your reasoning: Keep a note of why you chose the substitute and how it differs from the original
- Don't swap back for 31 days: After buying the substitute, don't sell it and rebuy the original within 30 days
- Check affiliated persons: The rule applies across your spouse's accounts and corporations you control
Using the tax-loss harvesting calculator
Our tax-loss harvesting calculator automates the analysis:
- Enter your unrealized losses by ticker
- See your tax savings at your marginal rate
- Get automatic substitute ETF suggestions
- View the 30-day timeline and year-end deadline
- Understand the net benefit after accounting for the deferred gain on re-entry
Sched3 also tracks the ACB impact when you swap: the original position's loss is crystallized, and the new substitute starts fresh at its purchase price.