December 25, 2019

Paying RRSP, TFSA investment fees from outside the accounts not an advantage, Finance says

There has been some confusion over the tax implications of paying RRSP and TFSA account management fees from outside those accounts. The confusion began when the CRA told attendees at the November 2016 Canadian Tax Foundation Conference that starting Jan. 1, 2018, paying registered plan fees from non-registered, or open, accounts would incur a tax penalty equivalent to the fee. However, a recent letter from The Department of Finance will recommend that the minister amend the Income Tax Act’s definition of “advantage” to exclude the practice of paying for investment management fees from funds outside of registered plans (including TFSAs). While the Income Act has not yet been amended, the letter is encouraging and will hopefully end the tax uncertainty.

In the letter, the Department of Finance acknowledged that investors are generally not tax-motivated when paying registered plans from outside the accounts, noting that doing so can even result in a net loss. Finance also specified that the fees paid cannot exceed a reasonable amount.

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