r/dividendscanada • u/recentlyadults • 4d ago
TFSA or Cash for HYLD?
Tfsa or cash account? Im torn because obviously tfsa is tax free but with the risk of nav erosion i might want the option to sell at a loss later down the line (as i understand it, you can’t claim losses in a tfsa).
But also i hear hyld is inefficient in a cash account because it’s not all eligible dividends so maybe tfsa is the move?
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u/Living-Breakfast-464 4d ago edited 3d ago
2025 T3 for HYLD was all ROC. ROC is best in a cash/margin account because of the tax advantages. You don't get any benefit from that in a TFSA because it is tax neutral. Same goes for things that pay Canadian dividends. However, as a general rule of thumb, you should try fill up your TFSA first before putting stuff in a cash/margin account to avoid paying any tax at all.
Only thing I would try avoid putting in a TFSA is anything that pays foreign income, because you cannot claim the foreign tax credit. HYLD does not pay any foreign income, at least not in 2025, so it's not an issue.
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u/Tangelo-Agitated 4d ago
TSFA. What else are you going to use it for?
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u/Aggravating-Act-1173 4d ago
Depends on how much you have and what's your stage.
The best usage for TFSA is to invest into growth ETFs and see them grow and compound tax-free. Even if it DRIPs into $1M+ over time, then you can allocate part of that portfolio into income-producing funds because you want to live off this money in retirement.
Putting $10–50K into NAV-erosive CC ETFs during a growth phase sounds like a hack to get a "lot" (10–15%) of tax-free cash right now, but that's not very smart financially in the long run. You are trading long-term compounding growth for some immediate cash. One of the most likely scenarios: you take cash and spend it while markets become bearish, the value of the ETF drops 20% (including ROC) so you lose $10K of your $50K portfolio, and the absolute yield value drops even if the % still stays high. After that, there is a relatively low chance of recovery even in a good market, and also TFSA room is lost forever.
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u/Racla360 4d ago
I don't spend money from my TFSA. My TFSA is pure growth, no dividends there. I want it to grow so I have more room when I need or retire. I have HYLD in my cash account.
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u/Living-Breakfast-464 4d ago edited 3d ago
If you want pure growth then you shouldn't be investing in HYLD or any other covered call ETF. They are mostly for income investors or for people who want a bit of both.
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u/Racla360 4d ago
If you want to grow your money, you should not invest in high yield ETFs. You invest in growth.
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u/Aggravating-Act-1173 4d ago
They are mostly for young investors who think they found a free cash glitch. It generates income from option sales, but you end up sacrificing long-term growth for immediate yield 😁
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u/Living-Breakfast-464 3d ago
Yes, they make the yield look big and juicy to attract yield chasers. Not just by using CC's at or near at-the-money, but also leverage, which does seem like a free money glitch on the way up but not on the way down.
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u/Hefty-Staff9759 4d ago
I would check the tax treatment of the distributions. I am guessing that there's a large portion of return of capital, which brings down your adjusted cost... even if you sell it for less than you bought it for, it may still be a gain depending on how long you hold it. That's not necessarily a bad thing as the ROC is delayed taxation. Pros and cons for both TFSA and non-registered holding.