Are expenses for your TFSA tax deductible?

Can you claim HST on a TFSA and/or RRSP on a tax return?

Elvira, you’re in luck: you can claim the Harmonized Sales Tax (HST) on your unregistered account consulting fees.

In your case, your advisor is not paid through commissions by the investment company. Instead, your advisor will charge you a fee, and you will likely pay the fee from the respective brokerage account.

However, you wouldn’t be so lucky if your advisor was earning delinquent commissions because you can’t deduct those fees. Tracking commissions are paid to advisors through the Management Expense Ratio (MER) of mutual/segregated funds.

Did you know that you can pay management fees from any account? For example, you don’t have to pay your RRSP management fees from your Registered Retirement Savings Plan (RRSP). Keep in mind the different types of accounts.

TFSA, a registered account, fees are not tax deductible

A goal for anyone who has a tax-free savings account (TFSA) is to grow it as much as possible to take advantage of its tax-free benefits. Paying fees from a TFSA reduces the amount held in a TFSA, meaning less money grows, leading to a smaller TFSA than if the fees didn’t come off the account.

You can pay your TFSA fees from an RRSP or an unregistered account.

If you pay fees from an RRSP, they come out tax-free, but you reduce the amount of money in the RRSP and thus reduce the tax-sheltered growth of the RRSP.

Paying TFSA fees from an unregistered or bank account, rather than an RRSP, allows the TFSA to grow tax-free and allows the RRSP to grow tax-protected until redeemed. You may have to pay capital gains tax if you have to sell an investment to generate money to pay compensation.

RRSP/RRIF, a registered account, costs are not tax deductible

Again, the more money you leave in your RRSP, the more money you’ll grow that is tax-protected. You may think it makes sense to pay RRSP fees with an unregistered account. But it’s not that easy to decide where to draw RRSP fees.

Think of it this way: If you have a $1,000 fee that you pay from an unregistered or bank account, you’ve lost that $1,000. Now consider the RRSP assuming your marginal tax rate is 30%. When you invest $1,000 in an RRSP, you get a $300 tax refund. When you pay the fee from your RRSP, you’ve basically only paid $700. Remember that the RRSP fee is tax-free.

This means that in the short term it is a benefit to pay RRSP fees from an RRSP, but in the long term paying from an unregistered or bank account may be better because you have left more money in the RRSP to be tax protected .

Are management fees of unregistered accounts tax deductible?

Yes. And probably your bank account is the best account to pay management fees on an unregistered account. It is the account with the lowest expected return. But most people do pay fees from their unregistered investment account.

Where Should You Draw Your RRSP Fees?

It’s complicated, and the answer depends on your marginal tax rate, your projected rate of return, and the length of time you plan to leave the money in your RRSP or Registered Retirement Income Fund (RRIF). Often times, the longer the time frame you have, the more logical it can make sense to pay RRSP fees from an unregistered or bank account.

Ultimately, most people will pay RRSP fees from their RRSP account.

I would also like to point out that if you pay TFSA or RRSP fees from an unregistered account, you will not be able to deduct the fees on your tax return.

It is worth discussing the fee with your advisor and to see which account(s) you have to pay your fees with. But don’t dwell on it too long. At the end of the day, where you receive your fees can make a small difference to your overall investment growth. But there are likely other things you and/or your advisor can do that will have a much greater impact on your financial growth and stability.

This post Are expenses for your TFSA tax deductible?

was original published at “https://www.moneysense.ca/save/taxes/are-fees-for-your-tfsa-tax-deductible/”