The Canadian Securities Association (CSA) regulates securities law in Canada, including disclosure requirements.They have issued several phases of Client Focused Reforms (CFR) to make changes to ensure clients’ interests are put first.
On July 15, 2016, Client Relationship Management Phase 2 (CRM 2) came into effect, laying out rules for Canadian Investment Dealers regarding greater transparency on the cost of investing.
We were very excited to see a change made where the full disclosure of all investment costs was required. However, we were subsequently disappointed to find out that not all fees associated with mutual funds are included in this. The fee report for mutual funds only includes the trailing commission that goes directly to the Wealth Advisor — it does not include the embedded fees also paid, and other costs incurred by the mutual funds.
In our opinion, disclosure of the trailing commissions as the lesser amount is even more misleading than not having any disclosure at all. This is because the amount reported is not the full amount of fees charged during the year, but the report gives the impression that it is.
Liquidity without a cost is very important. As a result, we have completed hundreds of proposals over the years for individuals where a component of our proposal discloses 100 per cent of the fees that they have been paying, such as embedded Management Expense Ratio (MER), Trading Expense Ratio (TER), as well as up-front costs such as commissions and Initial Sales Charge (ISC) funds, and costs to redeem, including Deferred Sales Charge (DSC) funds.
In addition to calculating what your total combined fees are, a second component of our analysis relates to the tax-deductibility of our investment counsel fees. As noted above, many fees are embedded. Any embedded fees are never tax-deductible, regardless of the type of account it is in.
Two factors to consider when determining tax-deductibility
1) How do I know if an investment fee is tax-deductible?
When determining the tax deductibility of investment costs, you must first assess if the fee meets the criteria to be deductible for income tax purposes.
The main point on whether the fee is deductible or not is whether there was advice given for the trade, or discretion used for the trade if the investor holds a managed account with a Portfolio Manager.
The second point is that it must be in a fee-based account as transactional commissions and any embedded costs cannot be deducted for income tax purposes.
If it meets the following criteria, you are permitted to deduct the fee and applicable Goods and Services Tax (GST) associated with it:
– The fee is 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 (including custody of securities, maintenance of accounting records, collection and remittance of income, and the right to buy and sell on their own judgement on behalf of some clients without reference to those clients).
– The service for which the fee is being charged is provided by a person/entity whose primary business activity is giving advice on whether to buy or sell certain securities.
– The fee is not a commission, and was not a charge from a stockbroker.
– The amount of the total fees paid is reasonable.
2) Which accounts can I deduct my investment counsel fees?
As a rule of thumb, if you must pay income tax on the investment income earned within an account, you can deduct the investment counsel fees related to that account. If you don’t have to pay income tax on the investment income earned within an account, because it is in a tax-sheltered account, then you cannot deduct the investment counsel fees.
Some examples of tax-sheltered accounts include:
– Registered Retirement Savings Plans (RRSP),
– Locked-In Retirement Account (LIRA),
– Registered Retirement Income Funds (RRIF),
– Life Income Fund (LIF), and
– Tax-Free Savings Accounts (TFSA).
Taxable accounts, also known as non-registered accounts or cash accounts, include investment accounts owned by:
– individuals,
– in joint name,
– legal entities, and
– trusts.
The one exception to the deductibility of investment counsel fees is for Individual Pension Plan (IPP) accounts. IPPs are registered pension plans for individuals who have corporations. The corporation makes contributions to the IPP on behalf of the owner(s). Investment counsel fees paid by the corporation for the IPP are tax-deductible for the corporation.
Investment counsel fees reduce your total net income. For example, if you held growth stocks in a non-registered account that don’t pay a dividend, and didn’t sell them, you can still deduct your investment counsel fees even though you technically don’t have any investment income for the year.
Other points to consider
Reimbursing registered account fees
While registered account fees are not deductible for income tax purposes, the Department of Finance issued a comfort letter stating that investment counsel fees to be paid outside of the account, or reimbursed to the account would not constitute an advantage. This then allows for further compounding growth in a tax-sheltered environment. For further information on this, refer to the past articles we have written: Extra deposit into your TFSA and Paying RRSP fees from a non-registered account
Account designated billing
With our billing system, we have the ability to designate account fees to be paid from select non-registered accounts.
For example, we have clients, Mr. and Mrs. Smith who are both 75 years of age. They have a Joint With Right of Survivorship account, and each have RRIF and TFSA accounts. They have elected to have their investment counsel fees associated with their TFSAs paid from the Joint With Right of Survivorship account to allow the funds to compound further within their TFSAs.
We have mapped out a plan with Mr. and Mrs. Smith to wind-down their RRIF accounts over the next ten years, so the investment counsel fees related to the RRIFs are charged directly to the RRIF accounts.
Although the TFSA fees are paid from their non-registered Joint With Right of Survivorship Account, they are not able to deduct this portion of the fee as it relates to a registered account. Come tax time, we prepare and provide a tax slip for Mr. and Mrs. Smith to provide to their accountant which contains the amount of investment counsel fees charges for the non-registered (taxable) portion of their investment portfolio so they can deduct it on their income tax return.
Kevin Greenard CPA CA FMA CFP CIM is a Senior Wealth Advisor and Portfolio Manager, Wealth Management, with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138, email greenard.group@scotiawealth.com, or visit greenardgroup.com.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
