August 26, 2019
Mr. Geoff Trueman
Assistant Commissioner
Legislative Policy and Regulatory Affairs
Canada Revenue Agency
Ottawa, ON K1A 0L5
Dear Mr. Trueman:
“Advantage”: Exclusion for Investment Management Fees
l am writing in regard to discussions between officials of the Canada Revenue Agency and the Department of Finance Canada regarding the definition "advantage" in subsection 207.01(1) of the Income Tax Act (the Act).
Investment management fees of registered plans, such as a Tax-Free Savings Account or a Registered Retirement Savings Plan, are normally expected to be paid using funds from within the plan. If the fees are paid directly by the holder/annuitant using funds outside of the plan, the resulting indirect increase in the value of the plan assets might be viewed as an advantage under the Act, if one of the main purposes is to benefit from the tax-exempt status of the plan.
Even so, we have no tax policy concerns with respect to the payment of investment management fees directly by the annuitant/holder of the registered plan. It is not evident that plan holders are tax-motivated when entering into arrangements to directly pay the investment management fees of their financial service providers. Generally, the direct payment of fees results in either a net loss, or negligible gain, for the plan holder. We are therefore prepared to recommend to the Minister of Finance that the Act be amended to clarify that the payment by a controlling individual (as defined in subsection 207.01(1)) of investment management fees that pertain to a registered plan does not constitute an advantage for the plan.
Specifically, we are prepared to recommend that paragraph (b) of the definition "advantage" in subsection 207.01(1) be amended such that it does not apply to payments by a controlling individual of a registered plan, not exceeding a reasonable amount, of fees described in paragraph 20(l)(bb) of the Act.
We also intend to recommend that the proposed amendment apply in respect of the 2018 and subsequent taxation years.
Thank you for engaging with us on this matter.
Yours sincerely,
Brian Ernewein
Assistant Deputy Minister – Legislation
Tax Policy Branch
