Q. We recently sold our Rideau Lakes cottage and invested the proceeds in a portfolio of segregated and mutual funds. We were wondering if any of the management fees are tax deductible. Thanks for your advice.
Wayne, Sharbot Lake
A. It depends. If you invested in traditional, open (non RRSP) segregated and mutual funds, with the management fees “embedded” in the portfolio, then they are usually not deductible. As you may know, these embedded fees are “hidden”, in that you don’t pay for them them separately, or in many cases even know how much they are. They are usually deducted before the returns, so you end up seeing the net return.
Why would you want to pay these fees separately? Well, at the very least, you can determine how much they are and how competitive the management and advisory fees are on your account. By breaking out the cost of advice and product, you can readily see what you are paying for investment advice.
If you invested through a wrap account or fee based managed portfolio, where the management and/or advisory fees are “unbundled” and charged for separately, you may then be able to deduct them as an investment counsel fee.
The other advantage to this “unbundling” is the potential for preferential pricing.
The problem with traditional segregated and mutual funds is that most of them charge the same fee regardless of the size of the portfolio. With a fee based or wrap account, your fee should reduce as the portfolio size increases.
With many firms this may start at a portfolio level of $100,000, although you will probably only realize significant savings, once your portfolio exceeds $250,000 or more.
This article provides general information and does not constitute financial or other professional advice. Seek independent advice before implementing any of the strategies discussed.
Imran Syed, BA CFP CFSB TEP is an independent, fee only Certified Financial Planner and can be reached at www.feebasedadvisor.ca. Please send any home related, financial planning questions to him by email at homes@ottawacitizen.com
