Is the cost of the newspaper you are holding in your hands tax deductible? It
all depends on how you use the financial information contained herein.
A recent Tax Court of Canada case involved Yann Davies who, on his 2003 tax
return, deducted slightly more than $2,300 in "investment counselling fees" paid
to Fryan Inc., a corporation wholly owned by his wife.
The deductibility of investment-related expenses is rooted in the Income Tax
Act, which allows investors to deduct fees paid for advice on buying or selling
shares or for the administration or management of those shares.
For the fees to be deductible they must be paid to a person --generally a
financial advisor -- whose principal business is advising others on whether to
buy or sell specific shares.
The judge found that $1,900 of the deduction was for the purchase of various
publications. Not only did the judge conclude that Fryan Inc. did not operate as
investment counsel, but "such an expense does not constitute an amount paid for
advice as to the advisability of purchasing or selling a specific share or
security. To be deductible, the amount must be paid for the advice itself and
not for subscriptions to publications."
The judge also referred to a 1991 Tax Court decision in which Khushroo Vatcha
attempted to write off the costs of various investment publications he
subscribed to, saying the subscriptions were acquired to earn investment income.
Mr. Vatcha testified that he was "seeking a superior yield on his various
investments." He argued that the information in the publications was used to
monitor his investment portfolio in order to increase his income.
The judge disagreed, concluding subscription fees for an investment
publication that lists and analyzes hundreds of corporations and securities is
not like paying a person for advice on specific shares.
"In my opinion," the judge said, "what Parliament contemplated in enacting
such a provision is a person-to-person relationship between a client seeking
advice with respect to a specific share or security and the advisor. Moreover,
to be deductible, the amount must be paid for the advice itself and not as a
subscription fee for a publication."
But what if you're in the business of advising others on the purchase of
securities? In 2004, Marc Handy, a broker with BMO Nesbitt Burns, successfully
won his tax case arguing that his $4,200 tab in financial publications
subscription fees should be tax deductible.
As the judge in that case remarked: "The acquisition of these publications
was solely for the purpose of assisting [Mr. Handy] in the appropriate
management of his clients' portfolios and was not intended to be used to
assemble a personal portfolio of investments in shares. Since [his] income was
earned from the reviewing, buying, selling and holding of various investments
for his clients, these subscriptions were necessary."
- Jamie Golombek, CA, CPA, CFP, CLU, TEP, is vice-president, taxation and
estate planning, at AIM Trimark Investments in Toronto.