7 October 1999 External T.I. 9909655 - FEES PAID TO FINANCIAL ADVISOR

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: Deductibility of Fees paid to Financial Advisor

Position: Question of Fact

Reasons: 20(1)(bb)

XXXXXXXXXX 990965
B. Kerr

October 7, 1999

Dear Sir:

Re: Administration Fees - Non-registered Investments

This is in response to your letter of March 25, 1999, requesting a ruling that the fees you pay to your financial advisor are deductible.

Our Comments

The situation outlined in your letter involves an actual fact situation. To the extent that it relates to a proposed transaction, assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular IC 70-6R3 dated December 30, 1996, issued by Revenue Canada, Taxation, However, we can offer he following general comments.

As stated in Interpretation Bulletin IT-238R2, paragraph 20(1)(bb) of the Income Tax Act allows a taxpayer to deduct fees, other than commissions, paid for advice on buying or selling a specific share or security by the taxpayer or for the administration or the management of the shares or securities of the taxpayer. The fees must 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.

It is a question of fact whether the principal business of your financial advisor meets this requirement. As stated in paragraph 4 of IT-238R, the following services would normally qualify:

• the custody of securities,
• the maintenance of accounting records,
• the collection and remittance of income, and
• the right to buy and sell on their own judgment on behalf of some clients without reference to those clients.

In light of the fact that your advisor has told you that the fees do not qualify and based on the limited information provided in your letter, we cannot conclude otherwise.

We hope these comments will be of assistance.

Yours truly,

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