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Kevin Greenard: Extra deposit into your TFSA

All of our clients have chosen to maintain their assets in a managed account where investment management fees are charged to the account. There is no annual administrative fee, and no commissions for buying or selling within the accounts.
Kevin Greenard

All of our clients have chosen to maintain their assets in a managed account where investment management fees are charged to the account. There is no annual administrative fee, and no commissions for buying or selling within the accounts. With a managed account, the fees are typically charged to each respective account. For example, if a client has a non-registered account, Registered Retirement Savings Plan (RRSP), and a Tax-Free Savings Account (TFSA), then each of these accounts would be charged a fee, based on the market value of those accounts.

One of the benefits with managed accounts is that the fees are 100 per cent transparent and you have the option to pay the fees for the TFSA and RRSP from your non-registered account. This can be automated, or this can be manual. Before we get into the differences between the automated process, manual process and benefits, we will give you a bit of the tax history surrounding the payment of investment management fees from non-registered accounts.

The advantage rules

The advantage rules are set out by the Canada Revenue Agency (CRA) and are in place to prevent abusive tax planning in registered accounts. The CRA announced on Nov. 27, 2016, at the Canadian Tax Foundation Conference the intention that those people who are paying their registered account investment management fees from a non-registered account may be liable for a penalty equal to the investment management fees paid starting Jan. 1, 2018. At that time, CRA’s stance was that the advantage rules needed to be imposed.

The following is from the CRA website: The Act imposes a special tax if certain supplementary advantages are provided in relation to a registered plan. The tax is equal to the amount of the advantage and is payable by the annuitant, subscriber or holder of the plan, unless the advantage is extended by the issuer, promoter or carrier of the plan, in which case it is payable by the issuer, promoter or carrier. The person responsible for the tax is required to file a special tax return and remit the tax.

Since the 2016 announcement, many petitions were submitted by the investment industry. CRA then delayed the implementation to Jan. 1, 2019. In 2019, CRA delayed the advantage rules, and the applicable advantage taxes, once again pending a review by the Department of Finance Canada.

On Aug. 26, 2019, the assistant deputy minister wrote the following letter:

Mr. Geoff Trueman
Assistant Commissioner
Legislative Policy and Regulatory Affairs
Canada Revenue Agency
Ottawa, ON K1A 0L5

Dear Mr. Trueman:

“Advantage”: Exclusion for Investment Management Fees

l am writing in regard to discussions between officials of the Canada Revenue Agency and the Department of Finance Canada regarding the definition “advantage” in subsection 207.01(1) of the Income Tax Act (the Act).

Investment management fees of registered plans, such as a Tax-Free Savings Account or a Registered Retirement Savings Plan, are normally expected to be paid using funds from within the plan. If the fees are paid directly by the holder/annuitant using funds outside of the plan, the resulting indirect increase in the value of the plan assets might be viewed as an advantage under the Act, if one of the main purposes is to benefit from the tax-exempt status of the plan.

Even so, we have no tax policy concerns with respect to the payment of investment management fees directly by the annuitant/holder of the registered plan. It is not evident that plan holders are tax-motivated when entering into arrangements to directly pay the investment management fees of their financial service providers. Generally, the direct payment of fees results in either a net loss, or negligible gain, for the plan holder. We are therefore prepared to recommend to the Minister of Finance that the Act be amended to clarify that the payment by a controlling individual (as defined in subsection 207.01(1)) of investment management fees that pertain to a registered plan does not constitute an advantage for the plan.

Specifically, we are prepared to recommend that paragraph (b) of the definition “advantage” in subsection 207.01(1) be amended such that it does not apply to payments by a controlling individual of a registered plan, not exceeding a reasonable amount, of fees described in paragraph 20(l)(bb) of the Act.

We also intend to recommend that the proposed amendment apply in respect of the 2018 and subsequent taxation years.

Thank you for engaging with us on this matter.

Yours sincerely,

Brian Ernewein
Assistant Deputy Minister – Legislation
Tax Policy Branch

Between Nov. 27, 2016, to Aug. 26, 2019, investors were left in limbo not knowing whether the advantage rules would apply. After nearly three years of waiting, investors received the comfort letter that they were waiting for — namely, that the advantage rules would not apply.

Automated payment of fees

The most streamlined process of paying the TFSA account fees is to automate it. We can only do this for clients who have a non-registered account. The one aspect to automating the fees to be paid from the non-registered account is that it must be set up for all the accounts linked in the household. This is fine for clients who are younger and just have a non-registered account, RRSP accounts, and TFSA accounts.

For clients who have adult children or elder parents linked to their household, then automating the payment of fees from the non-registered account does not work. It is better in these situations to leave the investment management fees to be charged to each of the respective accounts. In these situations, we will make manual payments to the selected accounts periodically. We have outlined the manual method below.

Another scenario is when clients have a corporate or trust account linked to the household. In these situations, we would not recommend automating the payment of fees from the non-registered account. We would recommend that the investment management fee be charged to each of the respective accounts. A manual re-payment of fees can be made to the applicable accounts.

At Scotia Wealth Management, the automation of fee payments is done through a specific form called an Account Designated Billing Fee (CA59) form and the non-registered account the fees are paid from is referred to as the designated account.

Clients should be aware that the holder of the designated account understands and agrees that paying the fees on behalf of another account listed on the Account Designated Billing Fee form does not entitle the holder of the designated account to take a deduction for such fees in calculating such holder’s taxes.

Account Designated Billing Fee form

One of the cautionary items we have clients sign off on the designated billing form relates to performance. The non-registered account where the fees are being paid from will naturally have performance numbers that are understated as a result of paying the fees for all linked accounts. On the flip side, all the other accounts will have overstated performance as no fees payable in respect of the registered account are included where the fees paid are from the non-registered account.

Annual performance and fee report

Annually, towards the end of January, firms will send an annual fee and performance report. For any client that has the Account Designated Billing Fee form set-up, as mentioned above, the performance numbers will be understated for the non-registered account paying all the fees and overstated for all the linked accounts. The same applies when you look at your annual fees paid. The annual fee paid from the non-registered account will be overstated and the linked accounts will have no annual fee. When reviewing these annual reports, it is best to keep in mind the structure of the fees if designated billing is set up.

Income splitting benefits

In some situations, our clients will have two non-registered Joint With Right of Survivorship (JTWROS) accounts. One where the higher income spouse is primary (higher income spouse’s name is first and the higher income spouse’s social insurance number shows on the tax slips) and another where the lower income spouse is primary (lower income spouse’s name is first and the lower income spouse’s social insurance number shows on the tax slips). These two accounts are typically set up to assist with income splitting and spousal loan arrangements. See our Times Colonist article “Spousal loans help split retirement income” for further information: here.

When a household has two non-registered accounts, we always link the designated account paying the fees to be the higher income spouse. There is no income attribution with respect to the higher income spouse paying the investment management fees of their spouse. Every year, this helps shift more and more income to the lower income spouse from the higher income spouse, resulting in lower overall household taxes.

Manual payment of fees

In those situations where fees are not automated, we can always process the manual payment of investment management fees. Let’s use Mr. and Mrs. Smith for example. They have a non-registered account, two RRSP accounts, RESP account, corporate account and two TFSA accounts. Combined, all seven accounts equal $1.2 million. Each account has been charged their respective fee because they have a corporate account. The investment management fees are one per cent. In addition, investment management fees are subject to the Goods & Services Tax (GST) of five per cent. When we do the manual calculations for fees, it will also include the tax component. The calculations below are using approximate average values for illustration purposes. Actual fees are calculated differently, and financial institutions will have different policies on how these are calculated, for example by using average monthly assets or average daily assets.

The right-hand side of the chart below will have the estimate of the annual fees. The chart below is for Mrs. Smith’s TFSA only.


Beginning of Year Balance

Deposit in Early January

 Cumulative Total After Deposit

Net Return at 7 Per Cent

 End of Year Balance

Estimated Average Value

Estimated Investment Management Fee 






































































































Estimated total fees for the period January 1, 2009 to December 31, 2020

$ 3,539.00

The above calculations are using approximate average values for illustration purposes, and the net return of seven per cent is the annual return after investment management fees. We have the tools to look up, on an account by account basis, the total of all fees charged (including GST) since the account was opened. In the case of a TFSA account, this can be as far back as 2009. We can also look up whether any fees have been paid in the past.

As a Portfolio Manager, we do not have discretion to move money between accounts until we have specific forms signed or verbal instructions. The movement of fees from the non-registered account to pay other account fees is done primarily through a verbal discussion with our clients. Another common method to pay for fees is to deposit a cheque. The fees paid would be either a cheque deposit or transfer, and we would code this as a “fee payment”. It is important to note that whether this fee payment is done by cheque or non-registered account transfer, it must not be coded as a “contribution”. We recommend specifically writing on the cheque “TFSA – fee payment” in the memo line of the cheque.

If we assume Mrs. Smith has never covered any of her fees in the past, she can either drop off a cheque for $3,539.00 or instruct us to transfer this amount from the non-registered account. After this, Mrs. Smith’s cumulative TFSA balance will be $118,591.95 ($115,052.95 + $3,539.00).

In a different scenario, Mrs. Smith, in early 2016, wanted to cover all fees up to 2015 in her TFSA. The fees up to that point were $1,164.94 (totalling $54.34 + $84.39 + $116.55 + $150.96 + $193.21 + $235.61 + $329.88). Mrs. Smith could still cover the residual of $2,374.06 now.

It is important to note that there is no set time frame for when this must be done. Most of our clients are eager to put more money into a Tax-Free Savings Account – this is one of the easiest ways to get an extra deposit into your TFSA.

Coming up: Our Feb. 19, 2021, article “Creative ways to pay RRSP investment management fees” will give you some further tips on this related topic.

Kevin Greenard CPA CA FMA CFP CIM is a Portfolio Manager and Director, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at Call 250.389.2138, email, or visit