Deducting investment fees

We sold our Rideau Lakes cottage and invested in a portfolio of segregated and mutual funds. Are any of the management fees tax deductible? WAYNE, Sharbot Lake

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 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.

By breaking out the cost of advice and product, you see what you are paying for advice.

If you invested through a wrap account or fee-based managed portfolio, where the management and/or advisory fees are 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.