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The expenses of the ETF itself are the responsibility of the securities lender . BUT this CAN increase your cost to borrow ... Actually, this added borrowing cost comes both from (1) the fact that the lender is paying the fund/note expenses AND that sometimes shares have to be created to lend, so the answer to the expense ratio questions is that no, you don't DIRECTLY pay the expenses, but that it is part of the reason that the borrowing costs are typically higher on ETF shares than individual securities
On the dividend questions the answer is actually the same as for individual securities; It depends on how long the short sale position is open. ... If you borrow to make a short sale, you, as you said, have to remit payments to the lender in lieu of the dividends distributed while you maintain your short position. You can deduct these payments only if you hold the short sale open at least 46 days and you itemize your deductions. ... If you close the short sale by the 45th day after the date of the short sale, you can't deduct the payment made to the lender in lieu of the dividend. Instead, you must increase the cost basis of the ETF used to close the short sale by that amount.
Also, remember that these "under 46 day short sale expenses" are treated as investment interest expenses. ... So they're subject to all of the rules and regulations involving investment interest expense. ... YOU have report them on Schedule A of your tax return. ..... If you don't itemize your deductions (in other words,if you use the standard deduction, rather than itemizing) investment interest expense won't be tax-effective for you, and you'll miss this deduction. ... AND if you can't take the deduction because you don't itemize your deductions, it's lost forever. There aren't any "elections" you can make to use the investment interest deduction to reduce your gain (or increase the loss) when you eventually close your short position.
Hope this helps