Are Your Fees Tax-Deductible?
Introducing Donnelly Advisors Group's tax-efficient Portfolio program. Lower investment costs, transparent fees and tax-efficiency are at the core of our portfolios.
Retail investment funds charge you an MER (Management Expense Ratio). This is the cost that you pay to the investment manager in exchange for professional management of the fund. The MER also provides for the day to day expenses of running the fund, as well as any compensation which is paid to your financial advisor. The MER is expressed as percentage and is charged against the total fund's assets regardless of how the fund performs.
The disadvantage with this structure is that the investment expenses which you pay are not reported directly to you. As a result, you cannot deduct your investment expenses against your income.*
Why are tax-deductible fees important?
Consider an investor with a $250,000 non-registered equity portfolio. Currently he pays 2.45% for his investment fund which is non-deductible. By structuring his investments in our tax-efficient Equity Portfolio, he will not only save 0.26% or $650 per year, but he will also be able to deduct his portfolio expenses, leading to a significantly lower cost.
| $250,000 |
Retail Investment Fund |
Our Portfolio |
| Pre-tax Portfolio Cost % | 2.45% | 2.19% |
| Pre-tax Portfolio Cost $ | $6,125 | $5,475 |
| Annual Tax Deduction $ * | $0 | $5,475 |
| Annual Tax Savings $ ** | $0 | $2,354 |
| After-tax Portfolio Cost $ | $6,125 | $3,121 |
| After-tax Portfolio Cost % | 2.45% |
1.25% |
In this example we see that this investor can save $3,004 per year and can cut his investment expense nearly in half. Ignoring market growth, over a 10 year period this investor would save $30,000. If the portfolio grows in value, then the cost savings would increase.
For a review of your current portfolio, including a comparison of your investment expenses, please contact David Mason.
* Deductibility of investment expenses are subject to prevailing tax law. It is our view that these portfolio expenses are fully tax-deductible for qualifying non-registered investments, however we recommend that you seek individual tax advice from a qualified tax professional. Portfolio expenses are not deductible for registered accounts. The effect of taxable investment income has not been considered in this illustration. Portfolio expenses are not guaranteed and may change at any time without notice.
** Assuming 43% marginal tax rate.
