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Horizons Cash Maximizer ETF (HSAV)
February 8, 2020
9:25 am
Strider
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February 8, 2020
2:00 pm
Norman1
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On its Holdings panel, it says the gross yield was 2.25% as of February 5, 2019! Either a typo in the year or really stale data.

It is a mutual fund corporation. So, what's left of the interest after corporate income taxes is capital appreciation.

I looked at something like this before. Seemed to be a bad idea. The corporation would pay high corporate taxes on passive income. Then, the investor would pay capital gains taxes on what remained!

February 8, 2020
4:57 pm
Bill
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Strider, I found your second link very interesting. I didn't know how to find funds/etfs with no distribution (not that I've been too actively researching) and the info indicates "total return" instruments might do that trick, so now I have some idea where to look - thanks!

February 8, 2020
11:06 pm
Strider
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Norman1 said
On its Holdings panel, it says the gross yield was 2.25% as of February 5, 2019! Either a typo in the year or really stale data.

It is a mutual fund corporation. So, what's left of the interest after corporate income taxes is capital appreciation.

I looked at something like this before. Seemed to be a bad idea. The corporation would pay high corporate taxes on passive income. Then, the investor would pay capital gains taxes on what remained!  

We’ll have to wait and see how this works out.
Horizons has had some attention from CRA recently wrt its swap etfs and being forced to restructure them.

February 8, 2020
11:13 pm
Strider
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Bill said
Strider, I found your second link very interesting. I didn't know how to find funds/etfs with no distribution (not that I've been too actively researching) and the info indicates "total return" instruments might do that trick, so now I have some idea where to look - thanks!  

I looked into Horizons etfs for my taxable account; a lot of good info on CCP blog.
https://canadiancouchpotato.com/2019/09/06/horizons-swap-etfs-the-next-generation/

Glad I didn’t go that way myself but interesting nonetheless.

February 9, 2020
12:01 pm
Doug
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Strider said

I looked into Horizons etfs for my taxable account; a lot of good info on CCP blog.
https://canadiancouchpotato.com/2019/09/06/horizons-swap-etfs-the-next-generation/

Glad I didn’t go that way myself but interesting nonetheless.  

Comment CCP is a blog run by Dan Bortolotti, who has long had a professed bias against Horizons ETFs. Some of his other PWL Capital colleagues see no issues with them.

Also, with the conversion noted by Norman, that info is stale. The swap-based ETFs use a new structure, and it was never the intent of the federal government to shut down the swap-based ETF industry; their motivations, although somewhat unclear, were elsewhere.

Cheers,
Doug

February 9, 2020
1:27 pm
Bill
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Thanks Strider, I did find that CCP blog info when I went looking. HULC & HXCN might be worth a closer look for me.

My situation is I don't want more income, I'd prefer to find some investments that pay no income, no distributions, just have chance of capital appreciation, but I don't want to spend time finding and following individual growth stocks that don't pay dividends, preferably want to find funds or other instruments that do it for me. Anyone's suggestions are welcome!

February 12, 2020
1:21 pm
bballstuffer
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Norman1 said
On its Holdings panel, it says the gross yield was 2.25% as of February 5, 2019! Either a typo in the year or really stale data.

It is a mutual fund corporation. So, what's left of the interest after corporate income taxes is capital appreciation.

I looked at something like this before. Seemed to be a bad idea. The corporation would pay high corporate taxes on passive income. Then, the investor would pay capital gains taxes on what remained!  

It doesn't work this way. You are correct if it was only one class. But Horizon is creating 44 corporate class ETFs and this is where it gets interesting.

Lets keep it simple and imagine there's only two corporate class ETFs: the HSAV and one that's pure Canadian equity . Now, the pure equity ETF will probably realize capital gains and dividends. Dividends are tax free if received by a corporation (which is the case here) and capital gains are taxed at half and the other half can be declared out as capital gains dividends which is tax free to the shareholders (us the investors). But this pure equity ETF will incur MERs: administration, professional fees, management fees, etcs, and these expenses can be used to offset income. This is where it gets really interesting. All the corporate classes ETFs collectively are considered one taxable entity, so in our case, there is only one tax return and one tax number to report. So that means you can pick and choose which type of income to offset. In most cases, you will offset income that attracts the highest level of tax so interest income will be deducted first.

So, in our simplified example, you have one fund that generates dividends and capital gains and one fund that generates interest income. For tax purposes, you can offset the interest income using the the MERs of both ETF classes.

Horizon has 44 corporate class ETFs so they will have a lot more flexibility on tax deductions.

February 12, 2020
6:24 pm
Norman1
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Dividends are tax free only if received by a connected corporation. To be a connected corporation, the corporation has to control over 10% of the paying corporation.

Capital gains dividends are not the same as capital dividends.

Capital gains dividends are most certainly taxable.

Capital dividends are tax free. Capital dividends can only originate from certain private corporations. Shares of the Horizon ETF mutual fund corporation trade publicly. Consequently, the mutual fund corporation is not a private corporation.

Also, the deduction for the MER each year can only be used once. If the MER deduction of one share class is used to shield the income of another share class, then the former share class will be paying more tax that year or in a later year.

That's okay if a shareholder owns shares of both classes. But, not so great if one only owns shares in the former class.

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