25 February 1987 Income Tax Severed Letter 5-2428 - [870225]

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.

C. Tremblay (613) 957-2139

FEB 25 1987

Dear Sirs:

This is in reply to your letter of October 31, 1986, wherein you requested our opinion as to the deductibility for tax purposes of investment counsel fees paid with respect to an RRSP in the circumstances set out in your letter.

Paragraph 20(1)(bb) of the income Tax Act (the Act) requires that the payment be made by the taxpayer and that this payment be made for advice given to the taxpayer as to the advisability of purchasing or selling certain property that is the property of the taxpayer or for services in respect of the administration or management of shares or securities of the taxpayer. In other words, the advice or services provided must be for the taxpayer's benefit and not for the benefit of someone else.

Reasonable administration fees paid by an annuitant to the trustee of an RRSP are considered to be deductible expenses in computing income from property and are not prohibited by the provision of section 18. Such administration fees relate to services as a trustee, provided to the annuitant and not for services such as investment counselling or for commissions, brokerage fees, etc. The charges for the latter services are expenses of the trust (see paragraph 2 of IT-124R5 ).

Shares or securities being managed must be owned by the taxpayer seeking the deduction under 20(1)(bb) of the Act. Although it is not necessary that the shares and securities be in the custody of the taxpayer, the taxpayer must be the owner. In an RRSP, the shares or securities of the plan belong to the trust, and not the annuitant. The advice to acquire such shares or securities under the RRSP could only have been sought and given for the trust's direct benefit and not for the individual's. As a result, it is our opinion that investment counsel fees paid with respect to an RRSP are not deductible by the annuitant in computing taxable income (see paragraph 7 of IT-238R2 ).

Normally, the general test for the deduction of an expense by a taxpayer requires that the expenses be "... incurred by the taxpayer ..." as contained in paragraph 18(1)(a) of the Act. Bearing this in mind in the circumstances described, such test would not be met under that paragraph to permit the deduction of the fees paid by the individual for services rendered to the trust or to the trust governed by an RRSP.

We trust our comments will clarify the Department's position in this matter.

Yours truly,

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch

Enclosures