Deduct your mutual fund fees

You’ll need funds that don’t include embedded “trailer” fees.

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From the April 2013 issue of the magazine.

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calculator_hires_322Fees you pay to an adviser to manage a non-registered investment account are tax-deductible. Unfortunately, if you’re a mutual fund investor, you can’t take advantage of this, because the fee paid to your adviser for helping you with your portfolio is buried in the fund’s management fee. On a typical fund with a 2.5% fee, 1.5% might go to the fund company, while the other 1% is a “trailer” paid to your adviser. There is a way around this, however. Scott Plaskett says you should ask whether your adviser can arrange to use a different class of mutual funds that does not include this embedded fee. Here’s how it could work:

  1. Ask your adviser to switch you to “F-series” mutual funds, which do not include payments to advisers. Instead of having 2.5% deducted from your returns, the fee is reduced to 1.5%.
  2. Your adviser’s 1% compensation is then charged to your account directly, so he or she gets paid the same.
  3. However, now you can write off the 1% as an advisory or investment counselling fee. On a $100,000 non-registered portfolio, you’ll reduce your taxable income by $1,000 every year, saving you $400 if you’re in the 40% tax bracket.

3 comments on “Deduct your mutual fund fees

  1. you also have an extra 1% in capital gains that you will have to pay taxes on (either now or in the future when the gain is realized). Sure you are better off paying the lower capital gain tax (in this case $200 when it is realized) but the article should have mentioned that.

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  2. How do you exactly calculate the fees? The amount of money varies daily, plus if you keep making regular new investments throughout the year, it seems like it could not even be worth the $400 given the ensuing headache.

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  3. Wow, this article completely misses two important facts. Fees on RRSPs and TFSAs are not tax deductible. And on non-registered accounts the deduction of fees is offset by the higher gain as pointed out by other comments. So whether you are in A class or F class the net effect is the same -although there is a timing difference and better clarity with F class.
    http://www.advisor.ca/tax/tax-news/investment-management-fees-whats-deductible-and-what-isnt-2748

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