11 August 2006 External T.I. 2006-0176951E5 - Legal expenses of an employee

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Beginning in which year can legal expenses incurred by the taxpayer to collect or establish a right to an amount that, if received, would be included in computing the taxpayer's employment income?

Position: A proposed amendment to the Act would make it available starting in the 2001 and subsequent taxation years.

							2006-017695
XXXXXXXXXX 						Jonathan Le Blanc
(613) 957-4363
August 11, 2006

Dear XXXXXXXXXX:

Re: Technical Interpretation Request - Deductibility of Legal Fees

We are writing in response to your letter of March 13, 2006, concerning a deduction under paragraph 8(1)(b) of the Income Tax Act (the "Act") for legal expenses incurred in respect of a disability claim with a life insurance company.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments.

Paragraph 8(1)(b) of the Act, and the proposed amendment thereto dated July 18, 2005, applicable to amounts paid in the 2001 and subsequent taxation years, permits a deduction in computing income from an office or employment for amounts paid by the taxpayer in the year as or on account of legal expenses incurred by the taxpayer to collect, or to establish a right to, an amount owed to the taxpayer that, if received by the taxpayer, would be required to be included in computing the taxpayer's employment income. Therefore, should the income that would be received from a disability claim be taxable under paragraph 6(1)(f) of the Act, legal expenses incurred in 2001 and subsequent years in respect of the legal action would be deductible under paragraph 8(1)(b).

In the event that you have incurred eligible legal expenses in 2001 and subsequent taxation years, you should contact XXXXXXXXXX the Winnipeg Tax Service Office XXXXXXXXXX will assist you in determining whether you are entitled to a deduction in respect of the paid legal fees.

Yours truly,

Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch