Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether a portion of the costs of Internet fees and a separate phone line are deductible expenses under paragraph 18(1)(a) of the Income Tax Act. The costs relate to obtaining information on whether investments should be sold, held or new investments purchased as well as general investment information.
Position: No
Reasons: The costs are on account of capital
May 8, 2000
Vancouver Island HEADQUARTERS
Tax Services Office M. Eisner
Nadine Smith (613) 957-2138
Client Services
2000-001522
Internet Subscription Fees
This is in reply to your facsimile received on March 20, 2000 concerning the above-noted subject.
In your facsimile, you have referred to an article which discusses the deductibility of Internet subscription fees. The article indicates that the Internet has become an investment tool with which investors do their trading, and keep track of their portfolio and stock performances. Within that context, Internet subscription fees become an expense incurred for the purpose of earning income. The deduction is determined by allocating the fees on the basis of the Internet time spent for investment purposes in relation to the total time spent using the Internet. The article also indicates that if a separate phone line is used, a portion of that cost is similarly deductible.
With respect to the above circumstances, you have referred to comments made in respect of line 221 (this line is a part of the T-1 Income Tax Return) in the "General Income Tax and Benefit Guide" (the "Guide"). In relation to the deduction of Internet fees, the Guide indicates that an individual can claim fees to manage or take care of your investments and fees for certain investment advice (see Interpretation Bulletin IT-238, "Fees Paid to Investment Counsel").
The following comments relate to expenses incurred in connection with an investment portfolio where the investments are capital property rather than inventory.
The comments in the article indicate that the time spent in using the Internet by an individual with respect to his or her investments gives rise to an expense that is deductible under paragraph 18(1)(a) of the Income Tax Act (the "Act"). However, expenditures (subscriptions to financial magazines and newspaper, advice on buying or selling a specific share or security, and the administration or management of shares or securities) incurred in connection with a portfolio of investments have consistently been regarded by the courts to be non-deductible capital expenditures by virtue of paragraph 18(1)(b) of the Act as they relate to the capital assets (i.e., the investment of capital) rather than the income earning process. See for example the decisions in Mr. Q v. MNR (50 DTC 372), F. Davida Beadle v. MNR (79 DTC 775), and Her Majesty the Queen v. Leonard R. Young (89 DTC 5234). Other than purchasing and selling securities which are capital transactions, it seems to us that the Internet would be used by an individual to obtain information on whether to sell, purchase or continue to hold investments, as well as general investment information. Thus, it is our view that the costs of Internet time and a separate phone line that are allocable to these activities are not deductible under paragraph 18(1)(a) of the Act (they are on account of capital). Further, it is our view that such amounts do not fall within the specific requirements of paragraph 20(1)(bb) of the Act.
We trust these comments will be of assistance.
For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the legislation Access Database (LAD) on the Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (613) 957-0682. The severed copy will be sent to you for delivery to the client.
John Oulton
Manager
Business, Property & Employment Section III
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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