Tax-deductible investment advice fees: What you can't and cannot claim

Investment fees you can and can't claim on your tax return

Patti pays fees for financial advice related to her investments and wonders if those fees are tax deductible

by

(Shutterstock)

Q: I’d like to ask a question about financial advice and counsel I receive from a financial firm and their professionals and the money I make on investments because of their counsel.

May I claim the fees I paid for services rendered by the financial firm on my income tax return?

—Patti

A: There are tax deductions for certain types of fees related to your finances and investments. Line 221 of your tax return – carrying charges and interest expenses – is for claiming management or safe custody fees, investment counsel fees, and similar expenses.

I’ll focus on these items, though line 221 can also be used to claim others like accounting fees (but only in certain circumstances); legal fees paid to collect, establish, or increase the amount of support payments; interest on money borrowed to earn interest, dividend, and royalty income; and other amounts related to limited partnership investments.

Ask a Planner: Leave your question for Jason Heath »

Fees for your investments may be deductible, Patti. Fees related to accounts that are tax sheltered, like RRSPs, RRIFs, pensions, or RESPs are never tax deductible. TFSA fees aren’t deductible either, given TFSA income and growth is tax-free. You can only claim fees that relate to taxable investment accounts like non-registered investment accounts, but not all fees.

Commissions to buy or sell investments are not tax deductible on line 221. That said, they increase your adjusted cost base for capital gains tax purposes or decrease your net proceeds, so technically, it’s like they are 50% tax deductible – just not as a carrying charge like some other investment fees.

Click here to see more personal finance questions answered.

Management expense ratios (MERs) for mutual funds or exchange-traded funds (ETFs) are also not deductible on line 221 either.

The investment fees that you can claim for your non-registered accounts, Patti, are “fees to manage or take care of your investments” or “fees for certain investment advice”.

To further elaborate, the fees must be “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.”

Fees paid by an investor on a fee-based investment account would therefore generally be tax-deductible, Patti.

Fees paid to a fee-only, advice-only, fee-for-service financial planner like me are generally not deductible. According to the Canada Revenue Agency, “fees paid for other types of advice such as general financial counselling or planning are not within the provisions.”

If such fees are paid by a corporation for an employee, they may qualify as “retirement counselling”, which is tax deductible by the corporation and considered a tax-free employee benefit.

For an individual, most financial counselling fees will not be tax-deductible, though if they relate in part to a sole proprietorship or a rental property, a portion may be.

Interestingly, if a fee-based investment counsellor’s fees cover services for both managing investments and for financial, tax and estate planning advice, it may be that the full fee shouldn’t be tax deductible. But I’ve never seen an investment management fee tax receipt or summary – whether from a small, private portfolio manager or from any of the big banks – make a distinction.

Subscription fees for financial magazines or newspapers are not tax deductible. Safety deposit box fees used to be tax deductible until 2013 but are no longer. I guess the thinking is that people don’t really keep physical share certificates or gold bars in their safety deposit box any more, so it’s hard to argue a safety deposit box is maintained for earning taxable investment account any more.

In summary, the main income tax deduction for financial or investment advice relates to investment management fees for a non-registered account, Patti.

Ask a Planner: Leave your question for Jason Heath »

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.

MORE ABOUT INVESTING: