Manulife's 2025 ETF Gains Trigger Year-End Tax Planning for Investors

TORONTO, ON – November 24, 2025 – Manulife Investments has unveiled its annual list of estimated reinvested capital gains distributions for its suite of Exchange Traded Funds (ETFs) and the ETF series of its mutual funds. While a routine annual announcement, the release serves as a critical signal for investors to begin their year-end tax planning, particularly for those holding these products in non-registered accounts.

The distributions, which represent realized capital gains generated within the funds throughout the year, will not be paid out in cash. Instead, they will be automatically reinvested into additional units of the respective funds for unitholders of record on December 30, 2025. This process, while seamless from a portfolio management perspective, creates a taxable event known as "phantom income," which can lead to an unexpected liability come tax season if not properly managed.

The Hidden Tax Bill: Understanding Phantom Income and ACB

For many investors, the term "reinvested distribution" can be misleading. Unlike cash dividends, these distributions do not appear as a deposit in an investor's brokerage account. However, the Canada Revenue Agency (CRA) considers them taxable income for the year in which they are declared. Investors will receive a T3 slip in early 2026 detailing the taxable amount, which must be reported on their tax returns.

This creates a crucial administrative task: adjusting the a_djusted cost base_ (ACB) of the investment. The amount of the reinvested distribution must be added to the original cost of the ETF units. This upward adjustment is vital to prevent double taxation. If an investor fails to increase their ACB, they will pay tax on the distribution in 2025 and then pay tax on the same amount again as part of the capital gain when they eventually sell the units. Diligent record-keeping is paramount.

"It's one of the most common and costly mistakes DIY investors make," noted a senior tax advisor at a Toronto-based wealth management firm. "They report the T3 income but forget the corresponding ACB adjustment, effectively volunteering to pay more tax than necessary down the line."

This tax implication applies strictly to non-registered or "cash" investment accounts. For those holding Manulife's ETFs within registered plans like a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP), these distributions have no immediate tax consequences, as the gains are sheltered from tax.

Spotlight on Performance: Which Funds Drove Gains and Why

The list of estimated distributions also offers a window into which market segments and strategies performed well over the past year. While many of Manulife's funds, particularly in the fixed-income space, reported zero or negligible capital gains, several equity-focused ETFs are set for significant payouts, reflecting strong underlying portfolio performance.

Two funds stand out with substantial estimated per-unit distributions:

• Manulife Multifactor Canadian SMID Cap Index ETF (MCSM): $3.944055
• Manulife Multifactor U.S. Small Cap Index ETF – Unhedged (MUSC.B): $3.281177

The large distribution from MCSM points to a banner year for Canadian small- and mid-capitalization stocks. The fund, which seeks to replicate a multifactor index of Canadian SMID-cap equities, has benefited from a strong run in the Basic Materials and Energy sectors, which constitute a significant portion of its holdings. With reported NAV returns exceeding 40% in the past year, the fund's managers likely realized substantial gains through periodic rebalancing and portfolio adjustments, locking in profits from top-performing positions.

Similarly, the robust distribution from MUSC.B reflects a powerful rally in the U.S. small-cap equity space. After years of lagging their large-cap counterparts, U.S. small caps have shown renewed strength in 2025. This resurgence is attributed to several factors, including more attractive relative valuations, expectations of easing monetary policy from the Federal Reserve, and strong earnings growth forecasts. As an unhedged fund, MUSC.B's returns for Canadian investors were also influenced by currency fluctuations, but the primary driver of the capital gain is the strong performance of its underlying domestically focused U.S. holdings.

The Investor Playbook: From Tax Planning to Tax-Loss Harvesting

With these estimated figures in hand, the clock is now ticking for investors to optimize their tax position before the December 31 deadline. The announcement effectively kicks off "tax-loss season," a period where investors strategically sell underperforming assets to realize capital losses.

These capital losses can be used to directly offset the capital gains generated by Manulife's distributions and other profitable sales within a portfolio. If total capital losses exceed capital gains in a given year, the net capital loss can be carried back up to three years or carried forward indefinitely to offset gains in future years.

Investors considering this strategy must be mindful of the CRA's "superficial loss rule." This rule prevents an investor from claiming a capital loss if they, or an affiliated person, buy back the identical property within 30 days before or after the sale and still own it at the end of that period. A common workaround is to sell a losing ETF and immediately reinvest the proceeds into a similar, but not identical, ETF to maintain market exposure while still crystallizing the loss.

For a transaction to count for the 2025 tax year, the trade must settle on or before the final business day of the year. For Canadian stock exchanges, this typically means the trade date must be no later than two days prior, making December 27, 2025, the effective deadline for most equity and ETF trades. This annual exercise of reviewing gains and losses serves as a valuable opportunity not only for tax optimization but also for disciplined portfolio rebalancing, ensuring an investor's asset allocation remains aligned with their long-term financial goals and risk tolerance.