R.J. Kauffman (613) 995-1787
May 20, 1986
Dear Sirs:
Re: Paragraph 20(1)(bb) of the Income Tax Act
We are writing in reply to your letter of January 21, 1986, wherein you requested our opinion on what would appear to be a specific situation. While we are not prepared to give an opinion on this specific situation, we would offer the following comments on the general situation.
Paragraph 20(1)(bb) allows a deduction to a taxpayer for certain fees paid to an investment counsel that would otherwise be treated as on capital account. A fee that is payable on acquisition would not meet the requirements in that paragraph as it is not paid for advice, but rather for the acquisition. A monthly administration fee of a fund would not appear to be deductible to that taxpayer under that paragraph either as it is not paid
"... for services in respect of the administration or management of shares or securities of, the taxpayer",
since it is the fund's shares and securities that are being managed or administered.
When the units of the fund are held as capital property, the monthly administration fee would not appear to be deductible under the general rules for computation of income under section 9 of the Act, as such fees would be on capital account and thus restricted by paragraph 18(1)(b). However, if the units were held as trading property such fees would appear to be deductible.
As mentioned above, these comments reflect a general situation and may not be relevant if all material facts of a specific situation were known. They are not binding on the Department. Nonetheless, we hope they are helpful to you and we apologize for the delay in responding.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch