Are fees for advisors helping clients with segregated funds tax deductible?

Conference for Advanced Life Underwriting (CALU) members posed this, and other tax questions, to the CRA at a roundtable discussion.

There were queries about leveraged insured annuities, pension splitting, trusts, and segregated fund fees, to name a few topics. Providing the answers was Theresa Murphy, director of CRA’s financial industries and trusts division at the income tax rulings directorate.

The meeting took place last May, but CALU released its notes and commentary in its September report.

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As for the fees, under CRA rules anyone who hires an advisor for the purpose of getting guidance on buying securities may deduct the advisor’s fee from their taxes. Murphy says CRA doesn’t consider segregated funds to be securities, so those fees are non-deductible.

CALU says the industry is lobbying CRA to take a wider view of securities to include segregated fund policies.

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Another member asked which tax topics CRA would be creating guides for next.

There are already 11 published folios, with another 19 to come, says Murphy. CALU says two insurance-related folios are nearly finished. One is on policyholder income from life insurance policies, and another on life insurance proceeds received by a private corporation.

The other questions are:

  1. Would certain transactions conducted after the rules to leveraged insured annuities were changed in 2013 void a policy’s grandfathered status?
  2. Does the CRA accept the position that the Canadian-controlled private corporation definition should be read taking into account any restrictions in an unanimous shareholder agreement on the director’s powers and on the ability of the holders of a majority of shares to elect the directors?
  3. Given the requirements imposed on LRIFs and LIFs, where payments are structured in a manner similar to a life annuity, and the funds are derived exclusively from a transfer of funds from a registered pension plan and the locking-in requirements are governed under applicable pension legislation, CALU is of the view that such payments should be considered payments in respect of a life annuity out of or under a superannuation or pension plan. Would the CRA permit such a payment to an individual to be viewed as qualified pension income for purposes of the pension credit and pension income splitting before the individual attains age 65?
  4. Can the CRA confirm that, if an attorney creates an alter ego or joint partner trust for the benefit of the grantor of the power, and transfers capital property of the grantor to the trust, that subsection 73(1.01) will apply such that the property transfer will be a qualifying transfer?
  5. When a foreign company receives the proceeds of an exempt life insurance policy upon the death of the owner of its parent Canadian company, into which surplus account of the foreign company would such proceeds go into? And assuming the foreign company doesn’t otherwise have an exempt, hybrid or taxable surplus balance, if the life insurance proceeds are distributed by way of dividend from the pre-acquisition surplus pool, will the full amount of the dividend result in a capital gain to the Canadian parent company?

For the detailed answers, read more here.

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