Character conversion rules are not a big deal for the new Horizons stock index ETFs

As mentioned in a post on a previous Horizons offering, the character conversion rules in the March 2013 budget effectively eliminate the ability of mutual funds to transmute income account gains into capital gains using forward contracts.

Two new Horizons ETFs, based on the S&P/TSX Capped Energy and Financials Indices, will track their respective Index by entering into total return swaps with Canadian banks.  Although realization under these swaps would be on income account, the disclosure effectively indicates that this is not a concern as settlement of the swaps will only occur to the extent necessary to fund redemptions – and the unitholders, other than perhaps investment dealers (who aren't bothered by income account treatment), generally will only trade their units on the TSX rather than redeeming them.

Neal Armstrong.  Summary of Preliminary Prospectus for Horizons Stock Index ETFs under Offerings - Forward Sale/TRS Funds.