1 December 1987 Income Tax Severed Letter 5-4011 - [Deductibility of Fees for Investment Advice and Management]

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.

79358/989 B. Fioravanti (613) 957-8962

December 1, 1987

Dear Sirs:

Re: Deductibility of Fees for Investment Advice and Management

This is in reply to your letter of September 3, requesting our views with respect to the deductibility of amounts paid for investment advice and management by an annuitant of a registered retirement savings plan ("RRSP").

As you noted, paragraph 18(1)(a) of the Income Tax Act (the "Act") sets out the general test for the deduction of an expense and requires, amongst other things, that the expenses be "... incurred by the taxpayer...". Accordingly, it is the Department's position that reasonable administration fees paid by an annuitant to the trustee of an RRSP trust are considered to be deductible expenses in computing income from property and are not prohibited by the provisions of section 18 of the Act. Such administration fees would relate to the overall direction and management of the affairs of the RRSP trust and are the type of services normally provided by a trustee to the annuitant. Services such as investment counselling, commissions, acquisition fees or brokerage fees etc., are not considered to be included as part of the administration fee.

On the other hand, fees paid and deducted by an individual for services (of the type referred to in the preceding sentence) rendered to a trust governed by an RRSP do not, in our view, satisfy the test in paragraph 18(1)(a) of the Act.

Paragraph 20(1)(bb) of the Act requires that the payment be made by the taxpayer for advice to him as to the advisability of purchasing or selling specific shares or securities for the taxpayer or for services in respect of the administration or management of shares or securities of the taxpayer. It is the Department's position that the advice or services must be provided directly to the taxpayer and not to some other party. Although it is not necessary that such shares or securities be in the custody of the taxpayer, it is our view that both legal and beneficial ownership must be in the taxpayer claiming the deduction. In this regard, the trustee who paid the fees would be entitled to reimbursement for expenses reasonably and properly incurred in the care of the property of the plan, which would include commissions etc. Since these expenses are expenses of the RRSP trust the trustee would be reimbursed out of the trust funds.

In the event that the annuitant pays such fees and expenses on behalf of the RRSP directly, the payment or payments would be a gift made to the RRSP within the meaning of paragraph 204.4(1)(b) of the Act and may result in an "excess amount for a year" as defined in subsection 204.2(1) of the Act.

We trust that the above will be of assistance.

Yours truly,

for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch