The Street: ETF is not entirely tax-free and investors need to pay attention to different product tax rules

On 26 July, The Street reported that although ETF was generally more tax-efficient than the Common Fund because of the in-kind buy-back mechanism (In-KindCreation/Redeposition) and the lower turnover rate, “tax efficiency” did not mean “tax exemption”. There are significant differences in the tax treatment of different types of ETF, and investors need to plan in relation to the type of hold and the nature of the account. It has been reported that ETFs that invest in in-kind gold, silver and silver may be taxed in the United States at the collection rate; that ETFs that use futures contracts usually apply the “60/40” tax rule, i.e. 60 per cent of capital gains are taxed at long-term rates and 40 per cent at short-term rates, independently of the time actually held; and that ETFs in part of foreign exchange may be taxed at ordinary income, while leverage and reverse ETFs may also be subject to the “60/40” rule because of their high turnover. The Street suggested that investors could reduce overall tax costs by rationalizing the allocation of taxable and extended accounts, holding ETFs for a long time, using tax-loss Harvesing and adding value to ETF shares。