By default, the Horizons ETFs are generally regarded under U.S. tax law as a corporation. As a result of a Canadian investment fund being regarded as a default corporation by the IRS, investors who own Canadian investment funds and who file U.S. tax returns will generally be considered to be holders of a “Passive Foreign Investment Company” (PFIC). Note that all U.S. citizens and green card holders are required to file a U.S. tax return even if they are residents of Canada or another country. Other Canadian residents with significant ties to the U.S. may also be required to file U.S. tax returns.

A PFIC is defined under U.S. tax rules. PFIC rules are intended to prevent U.S. taxpayers from securing preferential tax treatment, such as tax deferral, from investing in foreign securities in comparison with U.S. domestic securities. “Passive” is not meant to reflect on the investment strategy of the ETF: both active and passive ETFs managed by Horizons ETFs can be “Passive” for this purpose.

To help investors who file U.S. tax returns avoid the negative consequences of owning a PFIC (see below), Horizons ETFs has commenced providing PFIC Annual Information Statements for many of its funds.

This allows U.S. taxpayers to elect to treat these ETFs as “Qualified Electing Funds” (QEFs) on their U.S. tax returns. This election gives U.S. investors access to capital gains tax rates on their holdings of these funds.

Reporting Regarding owning a PFIC?

Each year, U.S. taxpayers must report each PFIC that was held for any portion of the tax year on a separate IRS Form 8621. On this form, taxpayers may make the mark-to-market election or the “Qualified Electing Fund” (QEF) election. There are also various supplementary elections that are beyond the scope of these materials. Annual IRS Form 8621 reporting is required for each PFIC that is directly or indirectly held by the investor, regardless of which election is made. However, it should be noted that an investor with indirect exposure through a PFIC to its underlying PFIC(s) may not be required to include in income the distribution from the lower-tier fund pursuent to IRC 1293(c).

Under the mark-to-market election, investors report all income and gains (both realized and unrealized) each year.

Under the QEF election, investors report their pro-rata share of the fund’s earned income for U.S. tax purposes. Investors also receive an increase to their tax cost basis in units of the funds, to correspond with amounts included in income under the QEF election.

The PFIC reporting from Horizons ETFs provides investors with information required to file a QEF election. In certain situations, such as cases where units of a fund decline in value during a tax year, other elections may be more advantageous. Investors should consult with a qualified U.S. tax professional for guidance on which election is most advantageous for each fund, taking into account statutory restrictions on revoking elections in subsequent tax years.

Horizons ETFs has elected an initial reporting period for U.S. tax information for QEF election purposes of May 1, 2020, through April 30, 2021. That information would be used by a U.S. Person when filing their 2021 income tax return in April 2022.

How do investors calculate the account level PFIC factors for the QEF election?

For each PFIC, a tax preparer will require the following: 1) the PFIC Annual Information Statement (AIS) for the fund provided by Horizons ETFs; and 2) account statements for the tax year provided by the tax payer’s investment dealer.

The AIS will provide the pro-rata share of the fund’s ordinary earnings and net capital gain per unit per day.

To calculate one’s individual amounts for a QEF election, you will multiply the number of unit days you held the fund (including weekends) by the pro-rata amounts on the AIS.

To calculate the number of unit days, you will multiply the number of units held by the number of days those units were held during the tax year. For example, for an account that held 100 units of a fund for the full year (i.e. 365 days), the number of unit days would be 100 x 365 = 36,500. If those units were held for 180 days, the number of unit days would be 100 x 180 = 18,000. This value would then be multiplied by the pro-rata values on the AIS and reported on IRS Form 8621.

If the number of units changes over the course of the year, the unit days calculation should be adjusted accordingly. For example, consider an account that starts the year with 100 units, then 65 days into the year, another 100 units are purchased (increasing the total number of units to 200). If no other changes are made for the remaining 300 days of the year, the unit days calculation would be: (100 units x 65 days) + (200 units x 300 days) = 66,500 unit days. In counting days, the day that units of a fund are purchased does not count, but the day that the units are sold does count.

Some ETFs have their own daily pro-rata amount and may have indirect exposure to additional ETFs that are PFICs (these are noted with “Please refer to the specific statement for indirect investment allocations.”) and the pro-rata amounts for those are referenced.

While the lower-tier fund PFIC factor information is provided, it is picked up proportionately by the top fund by series. Your tax advisor should be able to compare the factors provided and determine the overall PFIC income inclusion rate applicable to you.

When an investor makes a QEF election for his investment in a PFIC, he should over the lifetime of his investment (from date of purchase to date of disposal) not include in his taxable income any more income (or loss) that he recognizes ‘economically’. For example if an investor purchases 10 units of PFIC A for $20 per unit, and sells them 5 years later at $22 per unit his economic gain is: 10 x (22 - 20) = $20. The amount he should pay tax on is also $20. This should not change if PFIC A is also invested in PFIC B, and the investor makes a QEF election for PFIC B.


Investor purchases 10 units of PFIC A for $20 per unit. PFIC A has 10,000 units outstanding. In PFIC A’s portfolio of investments is PFIC B. PFIC A owns 1,000 units of PFIC B until June 30, when it sold 500 units (at a gain).

In year 1 of Investor’s investment: PFIC A reports Ordinary Earnings of $2 per unit and Net Capital Gains of $3 per unit. It makes no distributions. PFIC B reports Ordinary Earnings of $8 per unit and Net Capital Gain of $4 per unit. It makes a distribution of $3 per unit on July 30.

Investor would include in his US personal tax filings $2 x 10 + $3 x 10 + $8 x (750**/10,000) x 10 + $4 x ((750**/10,000) x 10) = $20 + $30 + $6 + $3 = $61. However since PFIC B made a distribution to PFIC A (which was included in PFIC A income) pursuant to IRC 1293(c) Investor may be able to reduce income inclusion by $3 x (500/10,000) x 10 = $1.5. Taxable Includable income is then $59 (rounded).

(**750 represents 1,000 units for ½ year and 500 units for ½ year)

Investor adjusts his tax basis in his investment from $200 to $259.

In year 2 (January 1) investor sells his investment for $22 per unit or $220. Economically he made $20. His tax inclusion for the year is $220 - $259 = a loss of $39. Add that $39 loss to prior year taxable income of $59 represents an overall taxable income of $20 over two year.

Investor may make an election to defer payment of tax until he receives distributions or makes a disposal.

This website uses cookies to ensure we give you the best experience. By continuing to browse the site, you are agreeing to our use of cookies. Click here to read our privacy policy.

Commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by Horizons ETFs Management (Canada) Inc. (the "Horizons Exchange Traded Products"). The Horizons Exchange Traded Products are not guaranteed, their value changes frequently and past performance may not be repeated. Certain ETFs may have exposure to leveraged investment techniques that magnify gains and losses and which may result in greater volatility in value and could be subject to aggressive investment risk and price volatility risk. Such risks are described in the prospectus. The prospectus contains important detailed information about the ETF. Please read the relevant prospectus before investing.

The Horizons Exchange Traded Products include our BetaPro products (the “BetaPro Products”). The BetaPro Products are alternative mutual funds within the meaning of National Instrument 81-102 Investment Funds, and are permitted to use strategies generally prohibited by conventional mutual funds: the ability to invest more than 10% of their net asset value in securities of a single issuer, to employ leverage, and engage in short selling to a greater extent than is permitted in conventional mutual funds. While these strategies will only be used in accordance with the investment objectives and strategies of the BetaPro Products, during certain market conditions they may accelerate the risk that an investment in shares of a BetaPro Product decreases in value. The BetaPro Products consist of our Daily Bull and Daily Bear ETFs (“Leveraged and Inverse Leveraged ETFs”), Inverse ETFs (“Inverse ETFs”) and our BetaPro S&P 500 VIX Short-Term Futures™ ETF (the “VIX ETF”). Included in the Leveraged and Inverse Leveraged ETFs and the Inverse ETFs are the BetaPro Marijuana Companies 2x Daily Bull ETF (“HMJU”) and BetaPro Marijuana Companies Inverse ETF (“HMJI”), which track the North American MOC Marijuana Index (NTR) and North American MOC Marijuana Index (TR), respectively. The Leveraged and Inverse Leveraged ETFs and certain other BetaPro Products use leveraged investment techniques that can magnify gains and losses and may result in greater volatility of returns. These BetaPro Products are subject to leverage risk and may be subject to aggressive investment risk and price volatility risk, among other risks, which are described in their respective prospectuses. Each Leveraged and Inverse Leveraged ETF seeks a return, before fees and expenses, that is either up to, or equal to, either 200% or –200% of the performance of a specified underlying index, commodity futures index or benchmark (the “Target”) for a single day. Each Inverse ETF seeks a return that is –100% of the performance of its Target. Due to the compounding of daily returns a Leveraged and Inverse Leveraged ETF’s or Inverse ETF’s returns over periods other than one day will likely differ in amount and, particularly in the case of the Leveraged and Inverse Leveraged ETFs, possibly direction from the performance of their respective Target(s) for the same period. For certain Leveraged and Inverse Leveraged ETFs that seek up to 200% or up to or -200% leveraged exposure, the Manager anticipates, under normal market conditions, managing the leverage ratio as close to two times (200%) as practicable however, the Manager may, at its sole discretion, change the leverage ratio based on its assessment of the current market conditions and negotiations with the respective ETF’s counterparties at that time. Hedging costs charged to BetaPro Products reduce the value of the forward price payable to that ETF. Due to the high cost of borrowing the securities of marijuana companies in particular, the hedging costs charged to HMJI are expected to be material and are expected to materially reduce the returns of HMJI to unitholders and materially impair the ability of HMJI to meet its investment objectives. Currently, the manager expects the hedging costs to be charged to HMJI and borne by unitholders will be between 10.00% and 45.00% per annum of the aggregate notional exposure of HMJI’s forward documents. The hedging costs may increase above this range. The manager publishes on its website, the updated monthly fixed hedging cost for HMJI for the upcoming month as negotiated with the counterparty to the forward documents, based on the then current market conditions. The VIX ETF, which is a 1x ETF, as described in the prospectus, is a speculative investment tool that is not a conventional investment. The VIX ETF’s Target is highly volatile. As a result, the VIX ETF is not intended as a stand-alone long-term investment. Historically, the VIX ETF’s Target has tended to revert to a historical mean. As a result, the performance of the VIX ETF’s Target is expected to be negative over the longer term and neither the VIX ETF nor its target is expected to have positive long-term performance. BetaPro Bitcoin ETF (“HBIT”), and BetaPro Inverse Bitcoin ETF (“BITI”), which are a 1X ETF, and an up to -1X ETF, respectively, as described in the prospectus, are speculative investment tools that are not conventional investments. Their Target, an index which replicates exposure to rolling Bitcoin Futures and not the spot price of Bitcoin, is highly volatile. As a result, neither ETF is intended as a stand-alone investment. There are inherent risks associated with products linked to crypto-assets, including Bitcoin Futures. While Bitcoin Futures are traded on a regulated exchange and cleared by regulated central counterparties, direct or indirect exposure to the high level of risk of Bitcoin Futures will not be suitable for all types of investors. An investment in any of the BetaPro Products is not intended as a complete investment program and is appropriate only for investors who have the capacity to absorb a loss of some or all of their investment. Please read the full risk disclosure in the prospectus before investing. Investors should monitor their holdings in BetaPro Products and their performance at least as frequently as daily to ensure such investment(s) remain consistent with their investment strategies.

Horizons Total Return Index ETFs (“Horizons TRI ETFs”) are generally index-tracking ETFs that use an innovative investment structure known as a Total Return Swap to deliver index returns in a low-cost and tax-efficient manner. Unlike a physical replication ETF that typically purchases the securities found in the relevant index in the same proportions as the index, most Horizons TRI ETFs use a synthetic structure that never buys the securities of an index directly. Instead, the ETF receives the total return of the index through entering into a Total Return Swap agreement with one or more counterparties, typically large financial institutions, which will provide the ETF with the total return of the index in exchange for the interest earned on the cash held by the ETF. Any distributions which are paid by the index constituents are reflected automatically in the net asset value (NAV) of the ETF. As a result, the Horizons TRI ETF receives the total return of the index (before fees), which is reflected in the ETF’s share price, and investors are not expected to receive any taxable distributions. Certain Horizons TRI ETFs (Horizons Nasdaq-100 ® Index ETF and Horizons US Large Cap Index ETF) use physical replication instead of a total return swap. The Horizons Cash Maximizer ETF and Horizons USD Cash Maximizer ETF use cash accounts and do not track an index but rather a compounding rate of interest paid on the cash deposits that can change over time.

*The indicated rates of return are the historical annual compounded total returns including changes in per unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. The rates of return shown in the table are not intended to reflect future values of the ETF or returns on investment in the ETF. Only the returns for periods of one year or greater are annualized returns.