Mr. Steve Hawkins of Horizons ETFs Management reports
HORIZONS ETFS PROPOSES CORPORATE CLASS REORGANIZATION FOR ETFS IMPACTED BY FEDERAL TAX CHANGES
Horizons ETFs Management (Canada) Inc. is proposing a corporate class reorganization of a number of its existing exchange-traded funds, listed herein, that primarily use derivative arrangements in order to achieve their investment objectives. The corporate class structure is expected to preserve all of the benefits offered by these exchange-traded funds under their synthetic investment strategies.
The decision to propose a corporate class structure follows an extensive review by Horizons ETFs of the activities and current tax positions of the relevant exchange-traded funds along with the proposed changes to the Income Tax Act. Following its assessment, Horizons ETFs has determined that it would be in the best interests of the unitholders of the relevant exchange-traded funds, currently structured as mutual fund trusts, to merge into a single multiclass mutual fund corporation, which would permit the exchange-traded funds to: improve operational efficiency; aggregate all future gains and losses on both the income and capital accounts; and substantially reduce the likelihood of distributions.
Under the proposed reorganization, units of each of these exchange-traded funds would be exchanged for a corresponding class of shares of a new mutual fund corporation. It is currently expected that the investment objectives, investment strategies and fee structure of the exchange-traded funds will not change. Once the exchange-traded funds are merged into the new mutual fund corporation, the corporate class exchange-traded funds would, in Horizons ETFs' view, be on a level playing field with other currently existing corporate class mutual funds and corporate class exchange-traded funds.
Corporate class mutual funds are very well established in Canada and continue to be used widely by Canadian investors. According to Strategic Insight, there are currently more than $155-billion of assets invested in corporate class mutual funds and exchange-traded funds.
"Even before the recent proposed changes to the taxation of mutual funds were announced, Horizons ETFs had been exploring the potential of a structural change for the majority of our synthetically replicated index ETFs, from a mutual fund trust to a mutual fund corporate class," commented Steve Hawkins, president and chief executive officer of Horizons ETFs. "Based on our review of the existing regulatory environment, including the tax changes proposed in the recent federal budget, we feel confident that the proposed corporate class structure will allow us to continue to offer our synthetic ETFs to investors in a manner that provides unitholders with all of the same benefits that they have enjoyed for the past 10-plus years, including: minimal tracking error; tax efficiency; and competitive fees."
It is also important to know these exchange-traded funds are not expected to carry forward any tax liability into the proposed mutual fund corporation, and there are not expected to be any historical or retroactive taxable implications to unitholders of these exchange-traded funds. The proposed reorganization is not expected to be a taxable event for unitholders of the exchange-traded funds, provided that, in the case of Canadian resident unitholders who hold units of the exchange-traded funds in taxable accounts, such unitholders make a joint election with the proposed mutual fund corporation under Section 85 of the Income Tax Act as part of the exchange from their existing trust units into shares of a series of the new mutual fund corporation. Horizons ETFs is establishing a process to provide assistance to unitholders in taking the necessary steps to file the joint election, which will be free of charge.
Listed herein are the exchange-traded funds that Horizons ETFs is proposing to merge into the new mutual fund corporation.
Additional details regarding the merger of the exchange-traded funds into a single multiclass mutual fund corporation will be announced in the following weeks, and further details will also be provided in an information circular that will be made available for unitholders to vote on the proposed changes. Subject to the receipt of all necessary regulatory, unitholder and other third party approvals, as well as obtaining any necessary exemptive relief under applicable securities laws in order to effect the corporate class reorganization, and the receipt of a final prospectus for the corporate class exchange-traded funds, it is expected that the corporate class reorganization would take effect prior to the end of the 2019 calendar year.
About Horizons ETFs Management (Canada) Inc.
Horizons ETFs Management is an innovative financial services company and offers one of the largest suites of exchange-traded funds in Canada. The Horizons ETFs product family includes a broadly diversified range of solutions for investors of all experience levels to meet their investment objectives in a variety of market conditions. Horizons ETFs has more than $10-billion of assets under management and 90 exchange-traded funds listed on major Canadian stock exchanges.
We seek Safe Harbor.
© 2020 Canjex Publishing Ltd. All rights reserved.