So much for being the nice guy on the ETF block.
For more than a decade, when U.S.-based Barclays Global Investors launched iShares ETFs in Canada, it never charged the goods and services tax (GST) on most of its exchange traded funds (ETFs). The company simply paid the tax out of the corporate coffers.
But changes are now in the offing.
U.S.-based BlackRock Inc. , which bought the iShares ETF business in December, now plans to charge investors the whole 13 per cent harmonized sales tax (HST) when it takes effect on July 1 in Ontario. (That includes the 8-per-cent provincial tax and 5-per-cent GST.)
The Toronto-based ETF provider told unitholders in a notice recently that it will "no longer pay GST on behalf of its family of iShares funds." The HST will now become part of the management expense ratio of the iShares Canada ETFs, and increase that fee by 0.01 per cent to 0.03 per cent depending on the fund.
Why the change?
"It is not industry practice in Canada or indeed globally [to absorb taxes]" Oliver McMahon, director of product management for iShares Canada ETFs, said on Thursday. "We want to bring everything into one industry standard just so it is more transparent for investors and comparable across the world."
Apparently, Barclays and later Blackrock have been absorbing most of the GST costs even though the iShares prospectuses indicate this additional cost would be absorbed by unitholders. Only unitholders in the iShares CDN Large Cap 60 ETF (XIU) and the six newly launched ones in January have been paying the GST.
XIU has always been charged GST because that was a holdover from the fee-structure when it formerly traded as an index-participation unit called TIPs, says Stephen Leong, vice-president of product development at iShares Canada. When BlackRock took control, however, it began charging the GST immediately on any new ETFs launched.
The iShares Canada unitholders did not get a lengthy explanation in their notice. It only talked about changing policy to "bring it line with industry practice."
In Canada, the rivals include Claymore Investments, BetaPro Management and Bank of Montreal.
What is interesting is that iShares Canada ETFs had nearly 80 per cent of the ETF market in terms of assets at the end of March, according to financial consulting firm Investor Economics.
It looks like the industry leader is bringing its policy in line with the little guys.