29 March 1996 Internal T.I. 9607657 - FEES PAID TO INVESTMENT COUNSEL

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:

Does "of the taxpayer" in 20(1)(bb) mean that the taxpayer must acquire the security

Position:

No

Reasons:

Words in the paragraph "for advice as to the advisability of purchasing..."

			March 29, 1996

	Toronto Centre TSO	Headquarters
	Large Files Section		C. Tremblay
	453-1-3	(613) 957-2744
	Attention:  C. Lau
			960765

XXXXXXXXXX - Fees paid to investment Counsel

We are writing in response to your memorandum of February 20, 1996, wherein you requested our interpretation of paragraph 20(1)(bb) of the Income Tax Act (the "Act") with respect to certain fees paid by
XXXXXXXXXX

The Issue as Given:

XXXXXXXXXX

TSO Position:

The Toronto TSO adopted the position that paragraph 20(1)(bb) of the Act presupposes the actual purchase of a share or a security to create the requisite source of property income for the investment counsel fees. Since the shares of the target company were not actually acquired by XXXXXXXXXX, the related XXXXXXXXXX fee would not meet the requirements of paragraph 20(1)(bb) of the Act and would be prohibited from deduction under paragraph 18(1)(b) of the Act.

Taxpayer's Position:

XXXXXXXXXX does not agree with the TSO interpretation and contends that the availability of the statutory deduction under paragraph 20(1)(bb) of the Act does not depend upon whether the shares in question were acquired.

Our Comments:

Paragraph 20(1)(bb) expressly permits a taxpayer to deduct fees paid for advice on buying or selling a specific share or security or for services in respect of the administration or of the taxpayer's shares or securities, provided the fees are paid to a person whose principal business either is advising others on purchasing or selling specific shares or securities or includes the provision of such administrative or management services.

In our view, the words ".. of the taxpayer" used in paragraph 20(1)(bb) of the Act describe a specific share or security which must be of the taxpayer and not for example his RRSP; what is intended is that the taxpayer who is seeking the advice from the investment counsel be the same taxpayer that is proposing to buy or sell the specific share or security. There may be difficulty in the wording of the paragraph in the English version, however, the french version of 20(1)bb) is clear

-une somme, autre qu'une commission, versée par le contribuable au cours de l'année à une personne:

(i) soit pour obtenir son avis sur l'opportunité d'acheter ou de vendre certaines actions ou valeurs mobilières,...

Accordingly, in a contemplated purchase situation, the words "for advice as to the advisability of purchasing or selling a specific share or security of the taxpayer..." do not impose a purchase transaction.

Consequently, we have interpreted the paragraph to mean that in order for the fees paid to be deductible by a taxpayer, the fees must be paid either 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 and 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.

Whether or not certain fees are paid for advice as to the advisability of purchasing a specific share or security is a question of fact.

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