Investment Expenses

Are you aware that you can deduct expenses incurred to earn investment income?

Most taxpayers are skeptical about deducting expenses.  The Canada Revenue Agency has been adept at informing taxpayers that there are few, if any, expenses that can be directly deducted in computing income.  While the ability to claim non-refundable tax credits for such items as medical expenses or charitable donations is well known, the tax credit is only available to the taxpayer at the lowest tax bracket, regardless of the income of the taxpayer. The ability to deduct investment expenses is a deduction in computing income and therefore reduces income tax at the top marginal tax rate of the individual.

What are the common types of expenses that can lead to a deduction (sometimes referred to as “carrying charges”)? A brief list of deductible expenses is:

  • The most common is interest expenses.  If the taxpayer has incurred an interest expense that can be directly related and identified with the earning of investment income (interest, dividends, limited partnership or capital gains), the interest expense is deductible.
  • Another important cost is investment counsel fees.  Sometimes, brokerage firms arrange to manage the investments for a set fee or a fee that is a percentage of the value of the investments. Those fees, plus the applicable HST, are deductible. The fees incurred by a mutual fund, often referred to as a MER, are deducted within the fund, so they are not claimed again by the unit holder. The deferred sales charges or brokerage fees to sell an investment are treated differently; they are a deduction in computing the capital gain or loss.
  • Accounting fees, where the cost can be related to the recording of business, professional or investment income.
  • Safety deposit box fees.

If you wish more information, please contact one of our advisors about these deductions.