Tofas Puns

I emailed this through to Vanguard, and /u/PattheShuffler thought it would be a good idea to post here.

This is the main reason for the extremely high distributions in VDHG, which you have to pay tax on now rather than delaying until years or decades later, where you would have been able to earn money on those delayed tax payments all that time.

____________________________________________________________

Hi,

I'm emailing about the way Vanguard handles taxation on currency hedging distributions for VGAD and the managed fund equivalent.

Vanguard has the option to use the Taxation of Financial Arrangements (ToFA) provisions in the Tax Act, which it currently does not. I've conversed with someone who said they contacted Vanguard and was told, ‘Our equity funds do not make a TOFA election, but our fixed income products do.’. That it isn't used is also clear based on years of no distributions and extremely high distributions at other times.

As a result of not using ToFA election, gains/losses on the forward contracts involved in the hedging process are taxed independently of the capital gains/losses on the investment. So when the Australian dollar appreciates, all investors in the fund are liable for a huge tax bill even if the return on the actual investment is zero or negative. The result is extreme tax-inefficiency for the investor (which is why I am writing to you).

Shares are one of the most tax-effective investments available due to the tax-effective treatment of capital gains. There are three reasons for this.

1. The 50% CGT discount
   If an individual has held shares for more than 12 months before selling, 50% is taken off their capital gain before adding it to their income tax return.
2. The ability to compound unrealised gains
   Tax is not paid on capital gains until the shares are sold. The result is that earnings can continue (and earnings on those earnings, and so on - for decades) for capital gains tax owed but not yet paid.
3. The ability to sell down when on a lower marginal tax rate
   Following the previous point of not paying tax on capital gains until the shares are sold, far less tax can be paid by waiting to sell until retirement when on a much lower marginal tax rate.

Collectively, the advantage of the capital gains component of shares is enormous.

VGAD and the managed fund equivalent combined hold almost 8 billion (billion, with a 'b') dollars of as

https://reddit.com/link/qfrg93/video/i4rz1d1g4ov71/player

Just curious, what was the experience like? What did the assessors look out for during the TOFA?

I have severe acute UC, and for the last ten months I’ve been on Stelara (every four weeks). However I haven’t gotten a lot of relief from my symptoms (less pain and formed stools but still lots of blood in stool and gas). Just wondering if anyone has switched to Tofa from Stelara and saw better improvement. Thank you!