Dec 17, 2021
With new legislation on tax changes to exchange traded funds (ETFs) awaiting implementation, Osler’s Matias Milet, partner, Tax, suggests fund providers collect as much data as possible for future reporting purposes, he told Advisor’s Edge in an interview.
A legislative deadline passed December 16 that affects how allocations of capital gains are treated when ETF unitholders make redemptions, leaving fund providers in an uncertain position and potentially raising tax bills for ETF holders next year. Provisions in the Budget Implementation Act, 2021 make the capital gains refund mechanism the only reasonable option for ETFs to allocate gains to redeeming unitholders – a methodology that can result in double taxation.
“Fortunately, providers won’t have to file a return or issue slips to investors showing the gains they’ve distributed and allocated until March of 2023 for the 2022 tax year, so there’s not an immediate urgency to figure out which rule applies,” says Matias. “But they should track as much data as they can.”
The financial industry has expressed concerns about tax fairness since the rules were first proposed in the 2019 federal budget. “I don’t think we’ll end up with only the existing capital gains refund mechanism, but there is this period of uncertainty for the industry and for investors,” says Matias.
Read the full article by author Melissa Shin on the Advisor's Edge website.