Wickham Estate v. R. – TCC: Amounts paid to Committee deductible under paragraph 20(1)(bb) as investment counsel fees

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The Estate of Freda Wickham v. The Queen (December 1, 2014 – 2014 TCC 352) dealt with the deduction of fees of $40,000 paid to the committee of the late Mrs. Wickham in 2011:

[2] The $40,000 was paid to Keith Sanders as remuneration for services he provided as committee of Ms. Wickham, prior to Ms. Wickham’s death in 2011. Mr. Sanders had been appointed Ms. Wickham’s committee by Order of the B.C. Supreme Court dated May 12, 2005 by reason of Ms. Wickham’s mental infirmity.

[3] Prior to being appointed committee, Mr. Sanders had acted as financial adviser to Ms. Wickham and her late husband while Mr. Sanders was employed at the North Shore Credit Union. Mr. Sanders retired from that employment in 2005 and did not provide investment management services to anyone besides Ms. Wickham after his retirement.

[4] Mr. Sanders said that he had promised Ms. Wickham’s husband that he would ensure that Ms.Wickham was cared for after his death.

[5] As Ms. Wickham’s committee, Mr. Sanders had authority over all of her affairs, and arranged for home care and health care for her and managed her financial affairs.

[6] Ms. Wickham had substantial assets, the majority of which consisted of a large portfolio of securities and a Registered Retirement Income Fund.

[7] The securities portfolio was maintained at HSBC and Mr. Sanders used a securities adviser from HSBC to assist him with managing the portfolio. HSBC charged an annual fee in the neighbourhood of ¾% of the total portfolio value.

[8] As Ms. Wickham’s health deteriorated, her health care costs increased substantially. By 2010, those costs amounted to $137,411. Mr. Sanders testified that he had to ensure that her assets were invested in a way that would produce sufficient income to cover these escalating expenses. He said that he reviewed the investments in Ms. Wickham’s account regularly and instructed HSBC purchase a number of investments in order to provide income growth. Some of these investments were made on his own initiative and some on the advice of the HSBC adviser.

[9] Ms. Wickham earned investment income of $73,892 in 2008, $63,473 in 2009 and $79,098 in 2010. She also made a capital gain of $84,000 in 2010 on the disposition of certain securities in the HSBC account.

[10] Mr. Sanders filed reports with the Public Trustee of B.C. in 2006, 2008 and 2010 in which he provided a summary of Ms. Wickham’s personal circumstances and health, a financial summary setting out her assets and liabilities and attached tax returns, and bank and investment statements. These reports were used to pass Mr.Sanders’ accounts as committee, and to determine the fees to which he was entitled for his services as committee.

[11] The Public Trustee approved the 2010 report filed by Mr. Sanders and determined his remuneration at $45,208.62 for the period from May 13, 2008 to May 31, 2010. The remuneration was broken down into two components: a fee of $19,424.80 for income management and a fee of $25,783.82 for asset management. Mr. Sanders took only $40,000 of the approved remuneration, and this amount was paid to him from Ms. Wickham’s account on January 11, 2011. The formula used in the calculation of the fees was not before the Court, but according to Mr. Sanders, they were based in part on the amount of income earned during the period and in part on the total value of the assets under management.

[12] Counsel for the respondent argued that since Mr. Sanders was responsible for handling all of Ms. Wickham’s affairs, including her personal and medical care, the primary purpose of the fees was for the care of Ms. Wickham and not for the purpose of gaining or producing income from a business or property.

The Crown also argued that the fees paid to Mr. Sanders did not qualify as investment counsel fees under paragraph 20(1)(bb) of the Income Tax Act since he was not engaged in the business of an investment counsel. The Crown relied upon a previous decision of the Tax Court that held that fees paid to the Public Trustee of Saskatchewan were not deductible:

[15] Counsel for the respondent relied on the decision of this Court in Bond Estate, where it was held that fees paid to the Public Trustee of Saskatchewan for management and administration of the shares and securities of a mentally incompetent adult were not deductible under paragraph 20(1)(bb). The Court found that the principal business of the Public Trustee was not advising others as to the advisability of purchasing or selling specific shares or securities and did not include the provision of services in respect of the administration or management of shares or securities.

Finally, the Crown argued that fees in connection with Mrs. Wickham’s RRIF were not deductible.

The Tax Court held that Mr. Sanders was in fact engaged in business as an investment counsel:

[21] In my view, the Bond case is easily distinguishable. The Court there found that the Public Trustee was not a commercial undertaking and did not hold itself out as offering investment counsel services. In this case, I have found that Mr. Sanders was engaged in a commercial undertaking.

[22] I also find that services provided by Mr. Sanders in respect of the administration and management of shares and securities owned by Ms. Wickham constituted his only business during the relevant period and therefore that it was his “principal business.”

[23] Mr. Sanders testified that he did not carry on any other business than that of providing investment management services in the course of acting as Ms. Wickham’s committee. From the evidence, the bulk of Mr. Sander’s role as committee consisted of the management and administration of the securities portfolio.

However the Tax Court agreed with the Crown that paragraph 18(1)(u) prohibited the deduction of that portion of Mr. Sander’s fees associated with Mr. Wickham’s RRIF. The Court determined that percentage to be 20% and accordingly allowed the appeal as to the remaining 80%:

[24] I agree with counsel for the respondent, however, that part of the fees that were paid related to Ms. Wickham’s RRIF. The “asset management” and “income management” components of the fees determined by the Public Trustee were based on the total value of the assets of, and income earned by, Ms. Wickham, including the value of and income earned by the RRIF. Clearly paragraph 18(1)(u) would prohibit deduction of the fees paid in relation to the RRIF. In the absence of evidence concerning the income from the RRIF in the period for which the fees in issue were paid, I believe the most logical approach to determining the proportion of the fees that were paid in respect of the RRIF would be to base it on the value of the RRIF relative to the value of the securities portfolio. In 2010 the approximate values of the securities portfolio was $1.4 million and the value of the RRIF was $360,000. Therefore the fees paid in respect of the RRIF would represent approximately 20% of the total fees paid, or $8,000.

[25] For all of these reasons, I would allow the appeal on the basis that the appellant be allowed a deduction of $32,000 under paragraph 20(1)(bb) of the ITA in its 2011 taxation year. The appellant is awarded its costs, which I fix in the amount of $200