Adjustment of investment expenses refers to the process of limiting the amount of investment expenses you can deduct from your taxable income. For Quebec taxpayers, a specific rule applies: you generally cannot deduct investment expenses in excess of your investment income. The Canada Revenue Agency (CRA) does not have a similar blanket rule limiting carrying charges and interest expenses to your investment income.
Investment expenses cannot exceed investment income. When claiming deductions such as a partnership loss (Schedule L, line 29 or line 136), carrying charges and interest (line 231), exploration and development expenses (line 241), or other property income deductions (e.g., repayment of interest, film deductions, foreign income tax, life insurance premiums, or advance repayments on life insurance), Schedule N must be completed to calculate the amount for line 260.
Exploration and development expenses (Schedule N, line 14) :
Add renewable and conservation expenses (RL-15 box 60-2 or RL-11 box A-1), Quebec development expenses (RL-15 box 61-1 or RL-11 box B-1), and Quebec exploration expenses not eligible for an additional deduction (RL-15 box 60-1 or RL-11 box A-2). Subtract the total from the amount on line 241 of the return and multiply the result by 50%.
Taxable capital gains (Schedule N, line 34) :
Enter the amount from line 139 of the return unless it includes a capital gain eligible for the capital gains deduction (line 292, calculated on form TP-726.7-V).
Carry-over of investment expense adjustment :
Amounts entered on line 260 or 276 can be carried back up to three years or forward to future years to reduce net investment income. Use Schedule N (lines 20–36) to calculate net investment income by subtracting investment expenses (lines 10–16, 50, and 52). To carry back a deduction, complete form TP-1012.B-V and file it separately.
Summary :
Revenu Québec imposes an explicit limit on certain investment expenses.
Deduction limit :
Investment expenses (excluding interest expenses related to business or rental income) can only be deducted up to the amount of investment income earned in the same year.
Carry-forward :
If investment expenses exceeded investment income in a given year, the excess can be carried forward indefinitely and used to offset investment income in subsequent years.
Reporting :
Schedule N of the Quebec tax return is used to calculate the amount to enter on line 260 for the adjustment of investment expenses.
Example :
François reports his $500 investment income on his federal T1 return. She paid $400 in investment interest and $200 in related fees.
Answer: François can deduct the full amount of her carrying charges, which include $400 in investment interest and $200 in related fees, for a total of $600 on line 22100 of her federal return. Her total investment expenses of $600 are limited to the $500 investment income, so she can deduct $500 in the current year. The remaining $100 is a disallowed expense that can be carried forward to 2026 and claimed against investment income then. Françoise completes Schedule N to report the $500 deductible amount on line 260 of her Quebec tax return.
Carry-over of the adjustment of investment expenses :
In Quebec, if investment expenses exceed investment income in a given year, the excess can be carried forward indefinitely to offset investment income in future years or carried back up to three years. Under federal rules, there is no automatic carry-over, but excess carrying charges and interest expenses can generally be used to reduce other sources of income. To track the carry-over in Quebec, Schedule N must be completed to calculate the adjustment of investment expenses, reporting the cumulative undeducted amount each year. In a subsequent year, accumulated carry-over can be used to claim a deduction up to the current year’s excess investment income and can also offset taxable capital gains on the disposition of investments. To carry back undeducted investment expenses, Form TP-1012.B-V, Carry-Back of a Deduction or Tax Credit, must be used.
Example :
David, a Quebec resident, has investment income and expenses as follows:
- 2024: Investment income: $500; Investment expenses: $700.
- 2025: Investment income: $600; Investment expenses: $300.
Answer:
2024 tax return (Quebec)
Deduction: David claims a $500 deduction for investment expenses on line 260.
Carry-over: He has a $200 excess ($700 expenses - $500 income) to carry forward.
Form: He records the $200 carry-over on Schedule N.
2025 tax return (Quebec)
Deduction: In 2025, David's income ($600) exceeds his expenses ($300). He can deduct the full $300 of current expenses.
Carry-over deduction: He can also deduct up to the remaining $300 of his investment income from his $200 carry-over from 2024.
Reporting: He deducts the $300 of current expenses plus the $200 carry-over, for a total deduction of $500 on line 260.
New carry-over: His remaining carry-over is now $0.
Posted on 15 January, 2026