Apr 2022

What Legal Fees Are Tax Deductible in Canada

Lawyers` fees incurred under the following may also be deductible: But the only area of tax representation through which we obtain the most questions is the deductibility of Canadian tax attorney fees to represent a client in relation to the appeal against a CRA assessment through a statement of objection or an appeal to the Tax Court of Canada. These are income tax services commonly referred to as tax dispute resolution files. If you earn business income, reasonable expenses to get advice and assistance in preparing and filing your tax returns are generally deductible. If you only earn work income, these special costs are not deductible. The lawyer`s fees you have incurred in the event of an appeal or appeal against a rating or decision of the credit rating agency in accordance with the following points are also deductible: in some cases, you may also be able to deduct certain accounting expenses. For more information, see IT99, Legal and Accounting Fees. § 3(a) The Tax Act requires a taxpayer to determine the amount of each (net) income for the year “from a source”, including income from any office, employment, business and property. Lawyers` fees deductible under paragraph 60(o) are not deductible when determining income or losses from a source and are therefore included in that calculation in accordance with subsections 4(2) and (3). For the same reason, these lawyers` fees are not included in the calculation of a non-capital loss as described in subsection 111(8) of the Act. The position of the credit rating agency, on which we agree on the review, is that, since expenses cannot result in a loss as a result of their application under section 4, they cannot generate a net loss and therefore do not result in the opportunity for a non-capital loss under subsection 111(8). Therefore, these expenses are “quarantined” and must be applied in the year in which they are actually paid by the taxpayer. It should be noted that this rule may not apply if lawyers` fees under subsection 9(1) are actually spent and offset by a source of business income. While there are certain circumstances in which such a deduction may be claimed, these circumstances generally do not include the common reasons – buying a home, divorce, determining custody, or seeking legal advice on drafting a will or administering a family estate – for which most Canadians incur legal fees.

In general, personal lawyers` fees (as opposed to business-related lawyers` fees) become deductible for most Canadian taxpayers only if they accumulate to collect amounts they believe are owed to them, and if those amounts include employment or employment-related income or, in some cases, family support. You can deduct the lawyer`s fees you paid to collect or establish your entitlement to salary, wages or other amounts related to work income paid directly by your employer. It is not a condition that the amount that is believed to be due is actually recovered, but only that it is a legitimate attempt to recover what you believe you owed yourself. However, the amount you were looking for should be clearly determined for your salary or the salary owed to you. Entitlement to these attorneys` fees must be reduced by any amount granted to you, as well as a refund you will receive for the legal fees you have incurred. The rules for deducting lawyers` fees incurred when an employee claims amounts from an employer or former employer are relatively simple. Unfortunately, the same is not true of the rules on the deductibility of lawyers` fees paid in the context of family support obligations. These rules have evolved little by little in recent years.

The current rules are as follows. From the perspective of the person paying support, legal expenses related to negotiating or contesting a support claim are not deductible. Legal expenses incurred for the purpose of terminating or reducing the amount of support payments are also not deductible. Clearly, this wording is intended to encompass the work that a Canadian tax lawyer does for a client in challenging an appeal or appeal. The controversy in this regard arises from the fact that such legal costs are generally deducted from the operating result in accordance with § 9(1) and generally accepted accounting principles. Another point of confusion is that tax professionals learn early on that income from certain sources, such as . B employment, are “quarantined” and that expenses are generally not authorized. While this is particularly true from the perspective of calculating a taxpayer`s income from a source of employment, confusion arises in determining actual “taxable income” under the Tax Act, which, as mentioned above, is an expression of the net sum of all sources, less specific deductions. You can deduct the lawyer`s fees you incurred to get advice or assistance in responding to the Canada Revenue Agency when it verifies your income, deductions or credits. This also applies if the credit rating agency checks your tax returns from previous years. However, the attorney`s fees you pay to obtain separation or divorce, or to enter into custody or access arrangements for a child, cannot be claimed as tax deductible. If you pay family allowances, you cannot claim any of the legal costs incurred in determining, negotiating or contesting the amount of maintenance.

Deductions for business lunches and entertainment expenses are limited to 50% of their costs. This includes meals while travelling or attending a seminar, conference or congress, overtime pay, room rental and service charges, etc., incurred for entertainment purposes. If the costs of business meals and catering are charged to a customer or customer and broken down as such, the non-consideration (i.e. . B the 50% is not deductible) is transferred to the customer or customer. In general, mining, oil and gas companies are allowed to receive a 100% deduction for base exploration costs. Other development costs are deductible with a 30% deductible on a decimal balance basis. In general, mining development expenditures prior to production are treated as “Canadian development costs” (CSDs) (a balance decreasing by 30%) and not as “Canadian exploration costs” (CES) (100% deduction).

In addition, mining costs incurred related to environmental studies and community consultations necessary to obtain an exploration permit or to comply with a legal or informal obligation under the terms of the permit are treated as EPEs that may grant an immediate deduction of 100%. Your legal expenses arising from the receipt or confirmation of entitlement to a pension allowance or retirement benefit are deductible up to a certain annual limit. Currently, this limit is the amount of the retirement benefit or pension income received during the year, minus a portion of those amounts transferred to a registered pension plan or pension plan. Legal fees that you do not claim in the current year can be deferred for up to seven years. Federal, provincial and territorial income taxes are not deductible when determining taxable income. The tax treatment of federal capital taxes and provincial taxes on wages and capital is discussed in the Other Taxes section. The information presented is of a general nature only, may omit many details and special rules, is only up to date at the time of publication and therefore cannot be considered as legal or tax advice. Please contact our office for more information on this matter and how it relates to your particular tax or financial situation. Under paragraph 60(o) of the Income Tax Act, these expenses are deductible in the year in which they are paid.

These expenses are deductible by the person paying the expenses, even if it is not the taxpayer whose taxes are disputed. Interest, rent, royalties, administrative costs and other payments made to affiliated non-residents are deductible expenses to the extent that they are incurred to generate income for Canadian corporation and do not exceed a reasonable amount. In some cases, the receipt of these payments through a foreign subsidiary of the Canadian business or a related person may give rise to the FAPI, which is taxable on an accrual basis in Canada. Legal costs incurred in the fight against an offer to take control of a company are not deductible. As they are not covered by point (a) of paragraph 3, the legal expenses deductible under point (o) of paragraph 60 shall be taken into account in the calculation described in point (c) of paragraph 3. The result of a calculation referred to in point (c) of paragraph 3 may not be negative. This is corroborated by the wording of paragraph 3(c): `the total amount determined in accordance with point (a) exceeds the total amount of the allowable deductions`. You can claim attorneys` fees paid during that year to make or establish a claim for the salary or wages owed to you.

See line 22900. On the payments side of the equation between payment of support and receipt, the situation is not as favourable, as a deduction for lawyers` fees incurred for a person providing assistance is generally not allowed. .

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