8 January 1997 Internal T.I. 9634777 - PUBLIC TRUSTEE FEES

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:

Public trustee fees deductible as carrying expenses?

Position:

Depending on the facts

Reasons:

1) 20(1)(bb) is specific
2) otherwise a business or property is required

January 8, 1997

WINNIPEG TAXATION CENTRE HEADQUARTERS
Enquiries and Adjustment Division C. Tremblay
(613) 957-2744
Attention: Debbie Miller
963477

Public Trustee Fees

We are writing in response to your enquiry of Wednesday October 16, 1996, wherein you requested our views on the deductibility of public trustee fees.

You have provided us with very few facts and it appears that your question does not relate to a specific situation. Generally, a Public Trustee is a person to whom care and custody of an unsound person and his and her estate has been committed. The Public Trustee is entitled to receive a fee to manage the legal and financial affairs of those particular taxpayers, and the fee represents a commission based on the property of the estate whether as capital or income.

In our view, the deductibility of fees for the services of trustees in the context of their duties is to be determined in relation to the facts of each case, taking into account the nature of the work carried out. If the expenditure is made with the intention of gaining or producing income from a business or property, the fee may be deductible subject to the general limitation of paragraph 18(1)(a) of the Act.

Paragraph 20(1)(bb) of the Act provides that specific expenses in respect of administration or management of shares of securities such as the custody of securities, the maintenance of accounting records, the collection or remittance of income and the right to buy or sell on behalf of the client would normally qualify. However, fees must be paid for advice on buying or selling a specific share or security of the taxpayer or for the administration or the management of shares or securities of the taxpayer. Fees must also be paid to a person whose principal business is advising others whether to buy or sell specific shares or whose principal business includes the administration or management of shares or securities.

The answer to Question 22 of the 1981 Conference Report of the Canadian Tax Foundation dealt with the deductibility of fees paid to the trustee and there the Department stated

"Trustee fees chargeable against income account are allowable where they meet the usual criteria necessary for deduction in the computation of income from business or property, viz., " made or incurred for the purpose of gaining or producing income from the business or property" paragraph 18(1)(a); "not an outlay... on account of capital" paragraph 18(1)(b); "reasonable in the circumstances" section 67.

Paragraph 20(1)(bb) requires consideration in the case of those fees charged to capital account and fees charged to income account that were not laid out to gain or produce income but were outlays on account of capital. Where the requirements of paragraph 20(1)(bb) are met all such fees are deductible.

It is not departmental policy that fees paid to individuals can never be categorized as amounts paid to a person whose principal business is advising on the purchasing or selling of securities or for services with respect to administration and management of shares of securities. However paragraph 20(1)(bb) is applied strictly."

In our view, fees paid for administrating properties are not expenses incurred for the purposes of gaining or producing income from the business or property. Since the duties of the Public Trustee appears to exclusively involve the handling of a taxpayer's assets rather than the management of shares of securities, generally, the provisions of paragraph 20(1)(bb) of the Act are not met. Further, in our view, Public Trustee fees are generally not deductible unless they are related to the income earning process.

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch