29 April 1998 External T.I. 9804925 - COMPREHENSIVE FEES, RRSP, COMMISSIONS

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:

Will comprehemsive fees provided in respect of property held by an RRSP or RRIF trust have to be allocated between commissions, management fees and investment counsel fees? WIll comprehensive fees provided in respect of investments held by an individual have to be allocated between the three?

Position:

No and Question of Fact

Reasons:

There is no advantage to the RRSP or RRIF trust. Commissions should be considered as part of the cost of the property and therefore only deducted when the property is disposed of.

XXXXXXXXXX 980492
M. P. Sarazin

Attention: XXXXXXXXXX

April 29, 1998

Dear Sirs:

Re: RRSP and RRIF Management Fees and Investment Counsel Fees

This is in reply to your facsimile dated February 26, 1998, wherein you requested clarification with respect to the breakdown of fees related to a registered retirement savings plan ("RRSP") or a registered retirement income fund ("RRIF") between management fees and investment counsel fees. In addition, you would like some guidance in determining how a comprehensive fee for all services would be broken down between commissions, management fees and investment counsel fees.

Comments

The determination of whether general fees or a comprehensive fees relating to an RRSP or RRIF trust would be considered commissions, investment counsel fees or management fees is a question of fact. The Department’s general views are as follows.

Where, under a contractual arrangement, a person charges a comprehensive fee which is generally a set percentage of the fair market value of the property for all of the services provided to the RRSP or RRIF trust (including commissions, management fees and investment counsel fees that would otherwise be incurred), we are of the view that the fees would not have to be allocated arbitrarily between its various components for purposes of the RRSP or RRIF trust. As previously advised, these fees can be paid by either the annuitant or the trust with no adverse tax consequences. If paid by the annuitant there is no deduction allowed for such fees under paragraph 18(1)(u) of the Act. However, brokerage fees or commissions charged on a per transaction basis are considered a cost of the property acquired by the RRSP or RRIF trust as a result of the transaction, and are to be paid by the trust to avoid adverse tax consequences.

For non-RRSP/RRIF accounts, whether or not fees paid by a taxpayer are for the management and the administration of shares or securities is a question of fact. The preamble of paragraph 20(1)(bb) of the Income Tax Act (the “Act”) specifically excludes amounts paid as commissions. Accordingly, in our opinion, a transaction fee related to a specific number of trades and not expressly for services in respect of the administration or management of shares or securities of the taxpayer would not be deductible under paragraph 20(1)(bb) of the Act. However, further to paragraph 4 of Interpretation Bulletin IT-238R2, fees related to the custody of securities, maintenance of accounting records and collections and remittance of income would normally qualify for the deduction.

Yours truly,

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