Horizon's ETF Section 85 Election - what to report next year

ADenariusSaved wrote: ↑ So I got all the forms ready from Horizon's portal (sent to Horizons + CRA) and entered the agreed amount as the disposition amount on my taxes creating a 0 capital gains situation. My concern is, what do I report when I sell the assets this year (or in subsequent years)? Do I just assume it is the same asset and keep the same ACB but enter the actual value of the disposition?

Theoretical scenario (numbers aren't real):

2018 - 2019 - bought HXS for [ACB of say, $10 000, 200 units, 50 each], the price now becomes $75
After conversion in Nov 2019, I buy 20 units for $1500, at $75 each in December 2019
In 2020: I sell all 220 units for $40 each for total disposition of $8800

Do I just report $10000 ACB disposed of at $8800 - for a net loss of $1200? Or do I have to report them as 2 different assets - a gain of $5000+ in 2019 (old share class) and a simultaneous loss of $6200 in 2020 (new share class) - with a net loss of $1200?

Thank you in advance! I know this is a complicated one.

ml88888888 wrote: ↑ I have the HFU and did the same election forms. I printed on paper & signed the Horizon copy, then scanned & sent it back to Horizons by email. Horizons never sent reply email back to acknowledge of receiving my signed copy. How did you send the signed copy back?
In your example case. I would think you should treat the original 200 shares as never been sold and kept the original ACB of $10k. Since you bought another 20 units for $1500. So your total ACB = $10000 + $1500= $11500. You sold all 220 units for $8800. So you would have total loss of $11500 - $8800 = $2700.
You said you have sold all 220 units @ $40 each. But your calculation about loss is based on 200 units. what about the loss for the 20 units you bought in 2019?

ADenariusSaved wrote: ↑ Thanks for the quick reply! You're right, yes I meant to include those as well. So I will just file as if they were the same asset and report the same consolidated loss/gain. I bought the H-total return swap series to avoid doing tax paperwork.

sckor wrote: ↑ Just to agree with @ml88888888 - from the perspective of future tax reporting, you just treat the 'merger' adjustment as if nothing happened. Your existing cost base just carries forward.

Yeah, it's a bummer to have to deal with this extra headache. But that was always a noted risk with the unusual tax deferral structure they use for these. With any luck, that'll be it... but who knows, tax rules change all the time.

ADenariusSaved wrote: ↑ Thanks! Because of this, this was my first time filing taxes so I learned a ton of stuff. Interesting, it would have nice to get feedback though. The CRA feels like a bit of a free-for-all. I guess they have bigger fish to fry now in any case =/.

ADenariusSaved wrote: ↑ Thanks for the quick reply! You're right, yes I meant to include those as well. So I will just file as if they were the same asset and report the same consolidated loss/gain. I bought the H-total return swap series to avoid doing tax paperwork.

I sent the signed copy back by snail mail. They said they wanted it by courier, but it seems like they don't care that much? I e-mailed them about notification of receipt but they just said 'proceed with the assumption that the tax election will be processed as submitted'. E-mail leaves a papertrail/electronic trail at least. On the phone/e-mail they advised me to do what you did (e-mail or send by courier). And of course I did neither lol. They actually respond promptly if you e-mail them, I was surprised. In my tax return I did note Section 85 option but I don't know if free-text is transmitted via Netfile.

Reporting the Disposition on your Tax Return

Disposition of Merging ETFs Units

The disposition of the Merging ETFs Units must be reported on the income tax return for the taxation year that includes the date of the disposition. This date is November 27 for the BetaPro and Commodity ETFs, and November 29 for the Total Return Index ETFs. The information contained on the Tax Election Form should be used for purposes of reporting this disposition.

The “Agreed Amount” provided by you and included on page 3 of the Form T2057 is the elected amount of proceeds received on the disposition of the Merging ETFs Units. If the Agreed Amount and the adjusted cost base are the same, no capital gain will arise on the disposition of the Merging ETFs Units. However, if the Agreed Amount is greater than the adjusted cost base of the Merging ETFs Units, a capital gain will arise as a result of the disposition and should be reported on the applicable income tax return.