Explore the various tax-deductible expenses related to investment income, including allowable carrying charges and those you cannot deduct. This guide provides comprehensive details to help you make informed decisions regarding tax deductions.
Earning investment income can involve various expenses. Luckily, tax rules in Canada provide allowances for individuals to deduct certain costs associated with earning income from property. These deductible expenses, often referred to as carrying charges, can significantly reduce your tax liability if utilized appropriately. Below, we delve into the intricacies of these tax-deductible items.
The following carrying charges are generally accepted by the Canada Revenue Agency (CRA) for deduction purposes:
Interest Paid on Borrowed Funds: If you borrow funds to earn investment income, such as interest and dividends, the interest paid on these borrowed funds can be deducted.
Certain Investment Advice Fees: Fees paid to receive certain types of investment advice are deductible.
Management, Administration, or Safe Custody Fees: Charges incurred for the management, administration, or safe custody of investments can be written off.
Accounting Fees for Investment Income: Costs associated with accounting services for recording investment income are deductible.
Additional deductible carrying charges may exist for specific circumstances that are not covered in this course. For detailed guidelines, always refer to the CRA website.
Not all investment-related expenses qualify for tax deductions. The following charges can’t be deducted from investment income:
Interest Paid on Borrowed Funds Exclusively for Capital Gains: Interest paid on money borrowed solely to buy investments that only generate capital gains isn’t deductible.
Brokerage Fees or Commissions: The fees or commissions paid to brokers for buying or selling securities cannot be deducted.
Non-Deductible Interest Payments: Interest on borrowed funds for contributions to RRSPs, RESPs, RDSPs, or TFSAs is not deductible.
Certain Administration or Trustee Fees: Administrative, counselling, or trustee fees for regular or self-directed registered plans like RRSPs or RRIFs aren’t deductible.
Financial Planning Advice Fees: Fees related to general financial planning are also non-deductible.
Safety Deposit Box Charges: Expenses for using a safety deposit box cannot be written off.
Eligible Deductible Items: Notable tax-deductible items include interest on borrowed funds for investment, specific investment advice fees, management fees, and accounting expenses related to investment income.
Ineligible Deductibles: Common non-deductible items comprise interest for capital gains-focused investments, brokerage fees, interest on RRSP/RESP/TFSAs, and financial planning fees.
Reference to CRA: Always check the CRA for clarity on all items considered as valid carrying charges for tax deductions.
Tax-deductible investment advice usually pertains to fees paid to advisors for direct investment services. General financial planning costs fall outside this scope.
No, administrative, counselling, or trustee fees for RRSPs and other registered plans are generally ineligible for deduction.
No, brokerage fees or commissions for the purchase or sale of securities do not qualify as tax-deductible expenses.
For the most comprehensive and up-to-date information, always check the CRA website here.
Carrying Charges: Deductible expenses for tax purposes, incurred to earn income from property.
CRA: Canada Revenue Agency, the governing body for tax collection and regulation in Canada.
Registered Plans: Accounts such as RRSPs, RESPs, RDSPs, or TFSAs designed with specific tax advantages for saving and investing.
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