The article “Are mutual fund fees tax deductible?” was originally published in MoneySense on April 24, 2023. Photo by Centre for Ageing Better from Unsplash.
Don’t go claiming a deduction for mutual fund fees on your tax return. Why? Because they’ve already been indirectly deducted.
“Are management fees within a mutual fund in a non-registered account deductible as carrying charges on my tax return?” – John
Tax treatment of mutual fund fees
The Canada Revenue Agency (CRA) allows taxpayers to claim carrying charges, interest expenses and certain other investment expenses as a tax deduction online 22100 of a tax return. This includes fees paid for investments to be professionally managed, fees for certain investment advice, interest on money borrowed for certain investment purposes, and in some cases, fees to prepare a tax return.
However, to answer your question, John,mutual fundfees cannot be deducted on your tax return. Fees paid to an investment advisor who manages your investments, excluding commissions paid to buy and sell investments, are generally deductible. The deductibility of fees is limited to taxable, non-registered accounts, so it does not apply to registered accounts likeregistered retirement savings plans (RRSPs)ortax-free savings accounts (TFSAs).
Why mutual fund fees aren’t deductible on your tax return
Commissions to buy and sell investments factor into the calculation ofcapital gainsand losses for a non-registered account, so there is some tax benefit. The commissions paid to buy and sell increase theadjusted cost base or reduce the proceeds of disposition accordingly.
Investment advisors may promote the tax deductibility of investment counsel or management fees as being a significant benefit of a fee-based account, where an investor pays a percentage of their assets in fees each month or each quarter. While these fees may be directly tax deductible on line 22100 of your tax return, the fees paid for a mutual fund are indirectly tax deductible.
This is because mutual funds flow through their net income to the fund’s unit holders. Net income is calculated by taking gross income, like interest, dividends and realized capital gains, and deducting expenses, including management fees. Mutual fund fees tend to be in the 2% range, but there are low-cost funds available.
A fee-based account may result in an investor paying lower fees than a traditional mutual fund, often in the 1% to 2% range. A fee-based account may also better align an advisor’s interests with those of an investor compared to a traditional transactional account. But to say that a fee-based account results in better tax efficiency may not be entirely accurate, since mutual fund fees reduce taxable income anyway.
Tax deductibility of ETF fees and other expenses
Exchange-traded funds (ETFs)have embedded fees like the ones attached to mutual funds, and those fees are not tax deductible directly on your tax return. However, like fees on mutual fund, those paid on ETFs are indirectly tax deductible because they reduce the net income flowed through to ETF investors to report on their tax returns.
Other non-deductible expenses include:
- Interest on money borrowed to invest in investments that can only earn capital gains
- Interest on money borrowed to invest in RRSPs, TFSAs, or similar tax-preferred accounts
- Safety deposit box charges (you used to be able to many years ago, so some people forget this)
- Subscription fees for financial newspapers, magazines or newsletters (though they may qualify for the digital news subscription tax credit)
- Fees paid for general financial advice, like financial counselling or planning
- Fees paid for tax return preparation, unless you were self-employed (reporting sole proprietorship or partnership income) or had a rental property
In summary, John, although you cannot deduct your non-registered mutual fund fees on your tax return, remember that they were already deducted from the net income reported on the T3 slip you claim on your tax return.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) atObjective Financial Partners Inc.in Toronto. He does not sell any financial products whatsoever.
FAQs
However, to answer your question, John, mutual fund fees cannot be deducted on your tax return.
Can you deduct mutual fund fees from taxes? ›
Mutual fund management fees are tax deductible in non-registered accounts, but commissions or trading fees to buy stocks and other investments are not tax deductible. Note that mutual fund management fees are different from management expense ratios (MERs), which are not tax deductible.
Can a partnership deduct investment management fees? ›
Because the management fee of each LTP is an ordinary and necessary expense paid or incurred in carrying on the trade or business of the LTP, the management fee is deductible under § 162.
Are financial investment fees tax deductible? ›
As of January 2018, these fees no longer contribute to reducing your tax bill. Before the TCJA, investors could deduct financial advisor fees if they exceeded 2 percent of their adjusted gross income (AGI) in 2017 and prior tax years.
Is mutual fund tax deductible? ›
Mutual funds are not tax-free except for ELSS (equity-linked savings schemes or tax-saving funds) and some retirement funds. As per the Income Tax Act, under Section 80C, you can claim a deduction of up to Rs. 1.5 lakh for investments made in ELSS and can save taxes up to Rs.
How are mutual fund fees deducted? ›
Investment management fees for exchange-traded funds (ETFs) and mutual funds are deducted by the ETF or fund company and adjustments are made to the net asset value (NAV) of the fund daily. Investors don't see these fees on their statements because the fund company handles them in-house.
Are brokerage fees tax deductible? ›
No. Any fees you pay to buy, sell, or hold an asset or to collect interest or dividends are not eligible for income tax deduction. This would include brokerage or transaction fees, management and advisor fees, custodial fees, accounting costs, and fund operating expenses.
What expenses can an investment partnership deduct? ›
Accordingly, the expenses incurred by the partnership during the taxable year for postage, stationery, safe deposit box rentals, bank charges, fees for accounting and investment services, rent, and utility charges are deductible under section 212 of the Code.
Can you deduct investment advisory fees on a partnership return? ›
It is crucial to document the purpose and benefit of these expenses to the partnership's operation to substantiate their deductibility.In conclusion, investment advisory fees for a family limited partnership that holds stocks passively may be deductible on the partnership's 1065 tax return if they meet the criteria of ...
What can a partnership deduct? ›
Expenses and Deductions
Deductible expenses include start-up costs, operating expenses, travel costs, and product and advertising outlays, as well as a portion of the money you spend on business-related meals and entertainment.
Investment interest expense
If you itemize, you may be able to deduct the interest paid on money you borrowed to purchase taxable investments—for example, margin loans to buy stock or loans to buy investment property.
Are Section 212 expenses no longer deductible? ›
Are Section 212 Deductions Permanently Suspended? The Tax Cuts and Jobs Act suspended Section 212 deductions through the end of 2025. It remains to be seen whether the suspension will be extended or if it will be reinstated.
Where do investment advisory fees go on a tax return? ›
The place to input the investment management fee for the taxable portion of your account is under the Federal area Deductions and Credits. Way down at the bottom under Other Deductions and Credits, enter it as Other Deductible Expenses, not as Tax Preparation Fees.
Which mutual fund is eligible for deduction under U S 80C? ›
What is ELSS Mutual Fund. ELSS is a type of Mutual Fund which allows you to claim for income tax deduction. You can save up to ₹ 1.5 lakhs a year in taxes by investing in ELSS, which is covered under Section 80C of the Income Tax Act, 1961.
Which mutual fund has tax exemption? ›
ELSS funds are equity funds that invest a major portion of their corpus into equity or equity-related instruments. ELSS funds are also called tax saving schemes since they offer tax exemption of up to Rs. 150,000 from your annual taxable income under Section 80C of the Income Tax Act.
Which mutual fund is best for tax exemption? ›
List of Top Tax Saving Mutual Funds in India sorted by ET Money Ranking
- Franklin India ELSS Tax Saver Fund. ...
- Sundaram ELSS Tax Saver Fund. ...
- Invesco India ELSS Tax Saver Fund. ...
- Aditya Birla Sun Life ELSS Tax Saver Fund. ...
- Tata ELSS Tax Saver Fund. ...
- Baroda BNP Paribas ELSS Tax Saver Fund. ...
- Nippon India ELSS Tax Saver Fund.
Report the amount shown in box 2a of Form 1099-DIV on line 13 of Schedule D (Form 1040), Capital Gains and Losses. If you have no requirement to use Schedule D (Form 1040), report this amount on line 7 of Form 1040, U.S. Individual Tax Return or Form 1040-SR, U.S. Tax Return for Seniors and check the box.
How to get mutual fund statement for tax return? ›
CAMS and KFin Technologies Limited
- Step 1: Individuals need to go to the webpage of CAMS and accept the Terms and Conditions.
- Step 2: Now, they will select 'Statements' and tap on 'Capital Gain/Loss Statement. ...
- Step 3: After this, taxpayers have to provide certain details in the required fields.
