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WHICH INVESTMENT FEES ARE DEDUCTIBLE?
8/22/2017 4:46:27 PM
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Fund Library Q&A
Your questions about financial planning, investments, and portfolio management answered by an industry expert



By Robyn K. Thompson  | Thursday, April 13, 2017




Q – I’ve recently been getting more information from my advisor about the fees and charges I pay. I’m told this may be because of recent new rules imposed on the financial services industry by securities regulators. However, what I’m not clear on is which of these fees is deductible on my tax return. When I looked into it, the list of what’s deductible and what’s not seems unnecessarily complicated. Can you shed some light on this? – Rikki O., Stony Creek, Ontario

A – You’re absolutely correct. Separating which investment-related fees (or, as the Canada Revenue Agency calls them, “carrying charges”) are deductible from which are not is complicated. And the CRA has a list to prove it. Here’s CRA’s list of the deductible carrying charges and interest you paid to earn income from investments:

Investment management. You may deduct the fees you paid for management or administration of your investments. However, you may not deduct the administration fees you paid for your Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF).

You may not deduct the fees charged to a mutual fund (the management expense ratio). Because the MER is charged directly against the fund, it is not reported on individual income tax slips and so cannot be claimed as an investment management expense.

In addition, the CRA says you may not deduct brokerage fees or commissions paid to buy and sell securities. Instead, you may be able to use these costs when you calculate your capital gain or capital loss.

Investors who pay fees directly for separately managed accounts (SMAs) or wrap accounts may deduct those fees as carrying charges on their tax return.

Also, if you were thinking of deducting safety deposit box fees as an investment expense, forget it. That particular tax break was eliminated for tax years after March 21, 2013.

Investment advice. You may also deduct fees paid for certain investment advice related to buying or selling a specific investment, or for recording investment income. However, you may not deduct subscription fees paid for financial newspapers, magazines, or newsletters.

There’s a fine line between what constitutes advice related to selling specific securities and what doesn’t. In its Interpretation Bulletin IT-238, the CRA attempts to make the distinction: It says fees paid for advice such as “general financial counselling or planning” are not eligible, even though the principal business of the advisor or counsellor otherwise qualifies.

Interest. You may deduct interest on money borrowed for investment purposes, which means you’re using the borrowed money to try to earn investment income, including interest and dividends. However, generally you may not deduct interest if you use borrowed funds only for the purpose of generating a capital gain.

In addition, you may not deduct interest paid on money borrowed to contribute to an RRSP, a pooled RPP, a specified pension plan, a Registered Education Savings Plan (RESP), a Registered Disability Savings Plan (RDSP), or a Tax-Free Savings Account (TFSA).

There is, however, a complicated exception to this rule. If you had previously borrowed money to invest in a non-registered account and then transfer the investment to an RRSP after you’ve repaid the loan in full, you may deduct the interest.

It’s pretty obvious that deducting investment expenses and carrying charges is fraught with peril. If your situation is complicated and there are large amounts involved, it would be best to consult your financial advisor before making any claims on your tax return. – Robyn

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.

Notes and Disclaimer

© 2017 by the Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.

 
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