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.
Principal Issues: 1. Whether the performance of investment counselling activities constitute qualifying services as set out in paragraph 20(1)(bb) of the Act. 2. Whether performance fees charged to the client, as a percentage of the increase in FMV, over a certain level, are qualifying amounts under the provision. 3. Whether the provision of counselling services in respect of registered funds are qualifying activities under the provision.
Position: 1. Maybe 2. Yes. 3. No.
Reasons: 1. Question of fact whether services actually provided are services described in paragraph 20(1)(bb). 2. Fees based on the increase in FMV of the portfolio qualify as investment counsel fees. 3. Income derived from registered funds not s. 9 income therefore fees not deductible under para. 20(1)(bb).
2006-020707
XXXXXXXXXX Jack Szeszycki
(613) 957-8972
March 23, 2007
Dear XXXXXXXXXX:
Re: Deductibility of Fees Paid for Investment Counsel
We are responding to your letter of September 21, 2006, in which you requested our views as to whether the investment counselling service you wish to provide is described in paragraph 20(1)(bb) of the Income Tax Act ("the Act"), and whether a performance fee included in the fee structure is a qualifying expenditure under that provision.
The Agency generally does not provide definitive opinions with respect to whether activities performed or services rendered by an individual or a business entitle the clients of that individual or business to a particular claim under the Act.
Paragraph 20(1)(bb) of the Act applies to a particular taxpayer who has paid an amount to a person in respect of services described therein. Without knowing the circumstances of a particular claimant, we are not in a position to offer an opinion on that taxpayer's entitlement to the deduction. It should be noted that this provision, if applicable, permits a deduction against income derived from a business or property, that is, income described in section 9 of the Act. Income attributed to investments held in registered plans, such as a registered retirement savings plan, is considered to be a source of income described within section 56 of the Act. Consequently, amounts paid in respect of the types of services otherwise described in paragraph 20(1)(bb) are not deductible where those amounts are paid for services related to investments held in a registered plan.
Interpretation bulletin IT-238R2, Fees Paid to Investment Counsel to which you have referred, contains the Agency's stated positions on issues surrounding the deductibility of claims under paragraph 20(1)(bb) of the Act. Paragraph 4 is not intended to list the services that must be provided to each client, but rather the types of services that constitute "the administration or management of shares or securities" that the business should be prepared to offer to its clients. As noted within that paragraph, whether or not your primary business is to provide the services as described is a question of fact. In your letter you describe a fee structure that includes a "performance fee", a fee computed as a percentage of the increase in fair market value of the portfolio over the course of the year, in excess of a preset level. Paragraph 5 of the bulletin makes a distinction between fees that are chargeable against income [from a business or property] under section 9 of the Act and fees chargeable on account of capital and deductible under paragraph 20(1)(bb). In our view, a fee that is based on an increase in the fair market value of the portfolio could be deductible under either provision depending on the circumstances of the client.
We trust our comments will be of some assistance to you.
Yours truly,
Randy Hewlett
For Director
Business and General Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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