14 February 2011 External T.I. 2010-0381561E5 - Deductibility of Trustee Fee

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.

Principal Issues: What portion of trustee fees paid for certain services is deductible under 20(1)(bb)

Position: It depends

Reasons: Both the relevant services rendered in respect of shares or securities held by a taxpayer and the business of the recipient of the payment for the services rendered must meet the requirements in 20(1)(bb)

XXXXXXXXXX
									2010-038156
									Dominic Tiu
									(613) 957-8981

February 14, 2011

Dear XXXXXXXXXX :

Re: Deductibility of Trustee Fees

This is in reply to your letter of November 22nd, 2010 asking for our comments on the amount deductible, if any, under paragraph 20(1)(bb) of the Income Tax Act (the "Act") in respect of trustee fees paid for certain services, being "trustee's general determination of investment strategies, liaison with investment counsel, liaison with beneficiaries, attendance to distribution of income and/or capital, payment of expenses and carrying out other duties of a fiduciary or administrative nature".

Our Comments:

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

As stated in our response to question #3 during the 2008 STEP National Conference, there is no specific legislation in the Act that addresses the deductibility of trustee fees in computing the income of a trust or estate. Trustee fees are deductible when they meet the usual criteria necessary to be deductible in computing income from a business or property. That is, where they are "made or incurred for the purpose of gaining or producing income from the business or property", "not an outlay...on account of capital" and are "reasonable in the circumstances", the amounts will not be denied by reason of paragraph 18(1)(a), paragraph 18(1)(b) or section 67, respectively. In addition, paragraph 20(1)(bb) provides a deduction for investment counseling advice in the circumstances described in that provision even though, in the case of a trustee administering shares or securities, all or part of the fees may have been charged to the capital account of the trust.

Paragraph 20(1)(bb) of the Act is an exception to the general rule that expenses on capital account are not deductible. The rule contains several restrictions including an ownership requirement (the shares or securities to which the advice or services pertain to must be shares or securities of the taxpayer), and a requirement that the payment for the advice or services must be to a person whose principal business is advising others as to the advisability of purchasing or selling specific shares or securities ("advising others") or, includes the provision of services in respect of the administration or management of shares or securities. Both the relevant services rendered in respect of shares or securities held by a taxpayer and the business of the recipient of the payment for the services rendered must meet the requirements of paragraph 20(1)(bb) in order for the fees described in that paragraph to be deductible to the taxpayer.

As such, where the principal business of a trustee is advising others, or includes the provision of services in respect of the administration or management of shares or securities, the portion of the trustee fees paid for advising others or for services in respect of the administration or management of shares or securities held by the trust generally would be deductible under paragraph 20(1)(bb) of the Act to the trust.

Where the trustee pays, on behalf of the trust, fees for advice as to the advisability of purchasing or selling shares or securities or for services in respect of the administration or management of the shares or securities held by a trust, to another person described in paragraph 20(1)(bb) of the Act, any reimbursement by the trust to the trustee for such fees may be deductible to the trust under paragraph 20(1)(bb) of the Act provided the requirements in paragraph 20(1)(bb) of the Act are otherwise fully satisfied.

As noted in paragraph 4 of IT-238R2 Fees Paid to Investment Counsel, whether the services provided by a particular person (whose principal business meets the requirements in paragraph 20(1)(bb) of the Act) are in respect of administration or management of shares or securities of the particular taxpayer as described in subparagraph 20(1)(bb)(iv) of the Act is a question of fact. However, certain services would normally qualify. As you have noted, the reference to the maintenance of the accounting records in paragraph 4 of IT-238R2 is clearly intended to refer to accounting records related to the share and securities of the particular taxpayer.

Yours truly,

Robin Maley
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch