Carrying Charges and Interest Expense (Québec)

Carrying charges and interest expenses can be deducted on both federal and Quebec tax returns if they are incurred to earn income from investments or other income-producing property. The deduction applies to the income earned in a non-registered account, and specific rules and limitations apply for both jurisdictions.

Carrying Charges:

Carrying charges are expenses incurred to earn investment income, excluding interest on borrowed money. Common examples include fees paid for investment advice. These charges are deductible to the extent that they relate to earning taxable investment income. On the federal return, carrying charges are reported on line 22100 of the T1, and on the Québec TP-1 return, they are reported on line 214.

Interest Expenses:

Interest expenses refer to the interest paid on money borrowed specifically to earn investment income, such as loans taken to purchase stocks, bonds, or rental properties, including margin loan interest. These expenses are deductible to the extent that the borrowed funds are used for generating taxable investment income. Like carrying charges, interest expenses are reported on line 22100 of the federal T1 return and line 214 of the Québec TP-1 return. The deduction is limited to the income earned from the investment and cannot create a loss.

In summary, carrying charges cover service or administrative costs for investments, whereas interest expenses are the cost of borrowing funds to generate investment income.

Investment-related non-deductible expenses

Note: Trailing commissions and the management expense ratio (MER) for mutual funds are not deductible, as they are automatically deducted from the funds’ net performance.

• Rental fees for a safety deposit box.
• Broker commissions on the purchase or sale of shares or mutual fund units (commissions on purchases are added to the cost of the securities, while commissions on sales are reported as expenses in Schedule G).
• Interest on loans used to contribute to registered plans such as RPPs, DPSPs, RRSPs, PRPPs (including VRSPs), RESPs, RDSPs, or TFSAs.
• Interest on loans used to acquire shares in Capital régional et coopératif Desjardins, Fonds de solidarité des travailleurs du Québec (FTQ), or Fondaction, le Fonds de développement de la CSN.
• Interest on loans for property transferred to an RPP, RRSP, RDSP, or TFSA (non-deductible from the transfer date).
• Interest on loans used to repay amounts withdrawn under the RRSP Home Buyers’ Plan (HBP) or Lifelong Learning Plan (LLP).
• Management and administration fees, including fees paid to investment counsellors, related to RRSPs, PRPPs/VRSPs, RRIFs, or TFSAs.
• Administration fees for shares in Capital régional et coopératif Desjardins, FTQ, or Fondaction.
• Costs for acquiring specialized publications and journals related to investments.

Example :

Hugo works full time with Bank of Nova Scotia. He borrowed $20,000 to buy shares of Scotia Bank and paid interest of $93.61. He took a loan of $5,000 from the bank to buy RRSP. Hugo wants to know if interest paid on the borrowed money for RRSP is deductible.

Answer: Hugo cannot deduct interest paid on RRSP loans, but he can claim interest paid on loans used to purchase stocks.