Paying investment fees from a non-registered account can provide ease of cash management over a portfolio and may be easier from an administrative perspective.The Department of Finance Canada’s recent letter to the Canada Revenue Agency stating that paying investment fees for registered accounts out of non-registered accounts does not constitute a tax advantage is a big win for investors, who are now free to pay their investment costs from any source they choose.
So, how did this all come about? In 2016, the CRA announced at a tax conference that its position on paying investment fees for registered accounts from non-registered accounts constituted an unfair advantage. Furthermore, the CRA stated that as of 2018, any taxpayer who engaged in this activity would be subject to a special advantage tax equal to the amount of fees paid outside of the registered account.
For one, investors may have investments that are less liquid in the registered account. So, paying for investment fees from a non-registered account can provide ease of cash management over the portfolio. In addition, paying all investment fees out of one account rather than from multiple accounts may be easier from an administrative perspective.
As an example, let’s consider an investor who has $100,000 in a TFSA and $100,000 in a non-registered account. Each account incurs investment expenses of 1.5 per cent, or $1,500, annually.Handout