In this week’s Weekly Tax Planning Tip video, Fabio explains why it’s smarter from a tax perspective, all things being equal, to compensate your advisor via fees. Check out the video to learn why…


Hey everybody, Fabio Campanella here from Campanella McDonald. So, this is going to be part one of a series of videos I’m going to make about building tax efficiency into a taxable investment account. So, let’s start with this. All right? You own a corporation, you’ve made some money, and you’ve retained some earnings in the corporation rather than dispersing them out to yourself, via a bonus or a dividend in order to avoid personal tax. That’s okay. So, you go out and you want to make some investments and you choose to make some traditional portfolio investments, some stocks for example. All right? The tip I’m going to give you today is how to compensate your investment advisor. Right, so, investment advisors like me who are fee-based, right, are a little bit more tax efficient than commission-based investment advisers. Why? The reason being is that commissions on stock trades get added to the adjusted cost base or the ACP of the stock that you’re trading.

So, when you buy a stock, if you pay whatever, a hundred bucks of commission that gets added to the ACP when you sell that stock, you then have a lower capital gain. However, capital gains are only taxed at half the normal rate. So, there’s already tax efficiency built into a capital gain. It’s smarter from a tax perspective, all things being equal, to pay your advisor, compensate your advisor, via fees. Why is that? The fee assets incurred by you in the taxable account is fully deductible, whereas the commission is de facto only half deductible. So, you can see that over time, all things being equal, you get a better tax treatment for the fee over and above the commission. So, I hope that helps. And following this video, there’s going to be a ton of other videos talking about how to build tax efficiency into your taxable portfolio. See you next time.

I hope that helps and we’ll see you next time.