# Taxing Fees



## mark558 (May 27, 2015)

Hello, I'm just wondering about a hypothetical situation here. I run an investment fund. I take 25% of the of whatever money I make for my clients in the form of fees. 

Are those fees taxable as regular income or capital gains?

Thank you very much.


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## Davis (Nov 11, 2014)

You're running a business, providing a service,charging fees... sounds like regular income to me.


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## Eclectic12 (Oct 20, 2010)

I'd expect as regular income as one would be running a business.

A day trader is considered to running a business so that they have to report their gains as business income ... not a capital gain.
http://www.taxtips.ca/personaltax/investing/taxtreatment/capitalorincome.htm


Where one is running an investment fund and the criteria used by CRA to class a day trader as a business is looked at ... at least four of the criteria will be satisfied and another two are likely. I suspect CRA will see six of eight a clear case of the fees being business income.


Cheers


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## OptsyEagle (Nov 29, 2009)

Don't forget to charge HST on top of all that?


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## Numbersman61 (Jan 26, 2015)

mark558 said:


> Hello, I'm just wondering about a hypothetical situation here. I run an investment fund. I take 25% of the of whatever money I make for my clients in the form of fees.
> 
> Are those fees taxable as regular income or capital gains?
> 
> Thank you very much.


Just a word of caution. Make sure you do not run afoul of provincial securities regulations. I recommend checking with your provincial securities commission to ensure that your business is in compliance since the consequences of breaching the rules can be very nasty. One complaint from a disgruntled investor can result in an investigation that can be potentially very costly in terms of legal fees, fines and trading prohibitions.


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## GreenAvenue (Dec 28, 2011)

But I think that if you -as individual- help out people with investments and they pay you that is capital gain. I do this for 4 elderly couples and was told to add the fees they pay me (which are marginal) to my normal income (from work). This extra income is taxed separately. A daytrader needs to register as a business and it that case the gain is business income.


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## Guban (Jul 5, 2011)

GreenAvenue said:


> But I think that if you -as individual- help out people with investments and they pay you that is capital gain. I do this for 4 elderly couples and was told to add the fees they pay me (which are marginal) to my normal income (from work). This extra income is taxed separately. A daytrader needs to register as a business and it that case the gain is business income.


I can't see how this is a capital gain. Capital gains occur when one sells something that has increased in cost. You are paid for services. This is taxed separately on the T2125, but not as a capital gain. I can't even imagine how you filled out schedule 3, showing the ACB and proceeds of disposition to show a capital gain.


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## Eclectic12 (Oct 20, 2010)

GreenAvenue said:


> But I think that if you -as individual- help out people with investments and they pay you that is capital gain.


 .... which likely won't apply to the OP as I expect there would be advertising involved in "running an investment fund".




GreenAvenue said:


> I do this for 4 elderly couples and was told to add the fees they pay me (which are marginal) to my normal income (from work). This extra income is taxed separately.


??? ... where one is told to add the fees into one's "normal employment income" - that's not a capital gain type taxation, that's regular income. There's also no "separate" taxation as it's being rolled in so that the total income is being taxed at 100% inclusion rate.

For the fees to be taxed as capital gain, AFAICT one would have to report the fees on schedule 3, where line 199 cuts the capital gain amount by 50% to end up with "taxable capital gain". None of the categories I see on schedule 3 would line up with fees.




GreenAvenue said:


> A daytrader needs to register as a business and it that case the gain is business income.


Do you have a reference?

I've has yet to see a link that says this ... I have seen several links say "don't confuse capital gains, run of the mill investing taxation with day trading business income taxation".


Cheers


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## CPA Candidate (Dec 15, 2013)

Of course it is business income. This isn't even debatable.


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## GreenAvenue (Dec 28, 2011)

Eclectic12 said:


> .... which likely won't apply to the OP as I expect there would be advertising involved in "running an investment fund".
> 
> 
> 
> ...


No, I don't have a reference. I got a call from the Securities Commission in 2012 and I had to explain my support to these elderly couples. There was no real legislation at the time in this province (NB) and they said I was allowed to help. To become a professional I had to get the mutual fund & CSC certificate. An accountant that was present in the conversation mentioned that I should add whatever I made to my regular income. The conversation had an overload of information so I made notes and that's where I got it from. I should check how the taxes where filed, I don't run a business, I'm pretty sure it was considered regular income. But I don't know the ins and outs.



Eclectic12 said:


> ??? ... where one is told to add the fees into one's "normal employment income" - that's not a capital gain type taxation, that's regular income.


 Yes you are correct. I meant 'regular income' but wrote down capital gain.


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## Guban (Jul 5, 2011)

If the income really is marginal, then putting it under line 104 as other income may be ok. But it sounds like getting paid to help others should be self employed income.


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