D.S. Delorey (613) 957-2129
May 12, 1986
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This is in reply to your letters of December 12, 1985 and March 6, 1986 concerning the deductibility of "upfront fees" paid when purchasing units in the AGF Option Equity Fund.
Such "upfront fees" normally form part of the capital cost of the units acquired, unless the fees can be said to be deductible pursuant to paragraph 20(1)(bb) of the Income Tax Act. We are enclosing for your perusal a copy of Interpretation Bulletin IT-238R2 which discusses the type of fees which are deductible under the said paragraph 20(1)(bb). We refer you particularly to the comment in paragraph 1 thereof that comissions are not deductible. We have obtained a copy of the April 23, 1985 Prospectus of the AGF Option Equity Fund and in this prospectus, it states that the "upfront fee" to which you refer represents a "commission" payable on acquiring units of the fund. Consequently, it is our view that the "upfront fee" to which you refer does not represent a deductible expense. Rather, it forms part of the adjusted cost base of the acquired units.
We trust that the above comments will be of assistance.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
20(1)(bb)