Where a taxpayer intends to carry out an economic activity and incurs initial expenditure for that purpose, it is necessary to determine whether the expenditure was incurred before the commencement of the activity or whether the business was actually taken over and whether the expenditure was incurred during the preparatory stages leading to the commencement of normal activities. ¶ 22. Paragraph 8(1)(b) allows, in computing income from an office or employment, to deduct legal fees paid by a taxpayer in that year for the purpose of relieving or establishing a right to salary or wages owed by an employer or previous employer. Under paragraph 6(1)(j), a taxpayer must include in income all gifts or refunds for amounts for which a deduction is possible under paragraph 8(1)(b). Those amounts shall be included in income to the extent that they are not included elsewhere or taken into account in the calculation of the amount deducted pursuant to Article 8(1). The rules for deducting lawyers` fees, which arise when an employee claims amounts from an employer or former employer, are relatively simple. Unfortunately, this does not apply to the rules relating to the deductibility of attorneys` fees paid in connection with support obligations. These rules have evolved somewhat piecemeal in recent years. The current rules are as follows. ¶ 23.
A deduction under paragraph 8(1)(b) is only permitted for an amount “owing” by an employer or a previous employer. If the taxpayer fails in court or fails to prove that an amount is owed, no deduction for expenses is allowed. However, the non-recovery of an amount established as due to the taxable person shall not preclude deduction under this paragraph. Pension benefits and retiring allowances do not fall within the definition of “salary or wages” in subsection 248(1); Legal fees related to these revenues are discussed in issues 25 to 27 below. ¶ 21. From the payer`s perspective, legal fees incurred to negotiate or dispute a support claim are not deductible because these expenses are personal expenses or living expenses. Similarly, legal fees incurred for the purpose of terminating or reducing the amount of support payments are not deductible, as the success of such an action does not generate income from a business or property. Legal fees related to obtaining custody or access rights for children are also not deductible. ¶ 6. Reasonable fees and expenses incurred to obtain advice and assistance in the preparation and filing of income tax returns are normally deductible under section 9 and are not limited to computing the business or property income to which those tax returns relate pursuant to paragraph 18(1)(a).
A taxpayer who is employed in connection with the sale of real property or the negotiation of contracts and who is entitled to deduct expenses under paragraph 8(1)(f) (see the current version of IT-522, Vehicle, Travel and Sale Expenses of Employees) may deduct a reasonable amount paid during the year to comply with the obligation to file an income tax return. ¶ 20. A person who incurs court costs is not entitled to deduct them if they are related to the receipt of a lump sum that cannot be identified as payment of a number of outstanding periodic support payments. However, the lump sum generally does not have to be included in income. You cannot deduct advertising expenses primarily targeted at a Canadian market if you are advertising on a foreign broadcaster. You can only deduct maintenance and repair costs if you can prove that the day-to-day operation of your daycare caused the damage and you did not receive any compensation or reimbursement from your insurer. ¶ 29. An employee who is entitled to deduct expenses under paragraph 8(1)(f) (see amended IT-522, Employee Vehicle, Travel and Selling Expenses) may deduct reasonable amounts paid during the year for legal fees arising from an event that, by its nature, presents a normal employment risk. For example, a real estate agent may deduct attorney`s fees in a defense against misrepresentation charges related to an abandoned sale of real estate.
However, legal fees would not be deductible if they were capital or personal in nature. Examples of capital assets or capital expenditures include an expense to protect the broker`s licence to earn real estate commissions and an expense directly attributable to a car accident that occurred while using the vehicle for personal use. of a personal nature. For example, if the term of your loan is five years and you pay a fee in the third year to reduce your interest rate, treat those fees as prepaid expenses and subtract them over the remaining term of the loan. For more information, see Accrual and Accrual Accounting. Where legal fees are claimed vary according to the type of costs incurred: a taxpayer may deduct amounts incurred in connection with legal and accounting fees incurred for advice and assistance in filing returns, after being informed that the taxpayer`s income or tax must be audited for a tax year, if a formal objection or appeal is filed subsequently. (c) transfers to a registered pension plan or pension plan deducted in accordance with paragraph 60(j), (j.01), (j.1) or (j.2); Such reduction shall be necessary only to the extent that the amounts so transferred are amounts for which deductible legal costs have been incurred in accordance with point O.1 of paragraph 60. ¶ 33. Legal and accounting fees incurred in criminal proceedings under section 239 (Tax evasion) are generally not reimbursable expenses because, in most cases, they are not intended to generate income. Those costs shall not be deductible pursuant to point (o) of Article 60 since the information relating to the levy does not constitute an assessment within the meaning of this paragraph.
According to comments in the current version of IT-104, Deductibility of Fines or Penalties, a fine would also not be deductible in such a situation. In certain circumstances, such as Ben Matthews & Associates v. MNR, [1988] 1 CTC 2372, 88 DTC 1262 (C.T.C.), attorneys` fees and accounting fees incurred to defend against section 239 lawsuits may be considered to be for revenue-generating purposes.