Interest on Borrowed Money to Buy Stocks - Tax Deductible?

[LawTalkingGuy]

Someone mentioned writing off data fees.

Does this mean that if you subscribe to TD Active Trader, you can write those fees off as well?

Thanks.

Yes, the fees should be deductible if you paid them for the purpose of earning income from property (but not exempt income, e.g. income in an RRSP). As discussed above, this means that the investments you acquire through using TD Active Trader must have some capacity to produce taxable dividends or interest at some point in the future. If you used TD Active Trader to acquire investments that could never produce anything except a capital gain (unlikely) then the fees wouldn't be deductible.

[ghostryder]

Someone mentioned writing off data fees.

Does this mean that if you subscribe to TD Active Trader, you can write those fees off as well?

Thanks.

Since these fees are not interest (Sec 20(1)(c)) or fees paid to investment counsel (Sec 20(1)(bb)) you will probably get disallowed on this. The courts have (AFAIK) not allowed similar expenses ruling that they are excluded under Sec. 18 (1)(b).

Of course, if you want to go to tax court maybe you will set a precedent.

[LawTalkingGuy]

I would take the view that fees paid to TD Active Trader should qualify under 20(1)(bb) or, otherwise, simply as an expense incurred for earning income (s 9) if the investments can produce income. But I take the point that the CRA might consider such expenses to be on account of capital and therefore not deductible (which IMHO is wrong). The alternative argument is that a portion of the fees should be taken into account when calculating a capital gain or loss on investments bought or sold through the TD service.

[ghostryder]

I would take the view that fees paid to TD Active Trader should qualify under 20(1)(bb)

I disagree and I would expect the courts to as well. I don't see how data fees could be considered:

(bb) Fees paid to investment counsel — an amount other than a commission paid by the taxpayer in the year to a person

(i) for advice as to the advisability of purchasing or selling a specific share or security of the taxpayer, or

(ii) for services in respect of the administration or management of shares or securities of the taxpayer,

if that person's principal business

(iii) is advising others as to the advisability of purchasing or selling specific shares or securities, or

(iv) includes the provision of services in respect of the administration or management of shares or securities.



I think that the court would look to something like this case as a precedent.

Dr. Patricia Goodhall-Gunn (Appellant) v. The Minister of National Revenue (Respondent) 85 DTC 663

While this would predate electronic subscriptions of information I doubt would see these any different than paper based subscriptions.

or, otherwise, simply as an expense incurred for earning income (s 9) if the investments can produce income.

The only way this would fly is if you are operating on income account. This would mean giving up any capital gains treatment and having all your gains treated as income. As per the case mentioned above:

The income is not earned from the investment program (that is the reviewing, handling, exchanging, buying, selling, and holding of various investments). The income is earned from the investments themselves — quite different. Clearly that income may be beneficially or adversely affected by decisions made in managing the investment portfolio (synonymous with the investment program), but once a certain bond or stock is purchased, providing it is held to dividend or interest date, the income therefrom is automatic and completely beyond the control or impact of the taxpayer. It is not and cannot be affected by further manipulation of the income stream — the investment portfolio held by Mrs. Goodhall-Gunn. All that can be done with already owned stocks or bonds, is to hold them securely in a safety deposit box, as evidence of entitlement to dividend or interest when the correct time arrives. As far as I am aware provision is made on schedule 4 of the Income Tax Return (Schedule of Investment Income) to permit a deduction for "safe keeping".

The alternative argument is that a portion of the fees should be taken into account when calculating a capital gain or loss on investments bought or sold through the TD service.

This may actually work based on what I have found so far in case law.

I found this in Iain C. Taylor (Appellant) v. The Minister of National Revenue (Respondent) 86 DTC 1018



F. Davida Beadle v. M.N.R., 79 DTC 775, and H.M. The Queen v. Leonard R. Young, 83 DTC 5408, which held that the cost of acquisition of certain literature was not a deduction from income permitted by paragraph 18(1)(a) of the Act. Both of these reported cases are concerned with the deductibility of the cost of subscriptions to certain literature which related to investments; the literature in Beadle (supra) dealt with information with respect to general economic trends and developments and the literature in Young(supra) provided information on the current status of corporations the shares of which Mr. Young owned or contemplated acquiring. The Federal Court of Canada upheld the decision of the Tax Review Board in Young(supra) that the cost of the literature was a capital expenditure that ought to be added to the adjusted cost base of the taxpayer's shares. The Beadle (supra) appeal was dismissed as well.


I should probably change my name to "LawReadingGuy"

[zoltorg]

Previous poster hit nail on the head.

However, commissions will adjust your ACB upwards.

Can't be deducted from income unless buying and selling securities is your business.

Income treatment sucks compared to capital gains.