16 April 1998 External T.I. 9805855 - PROFESSIONAL FEES - DECEASED TP.

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether accounting and legal fees incurred by an executrix with respect to the final return of a deceased taxpayer can be deducted by the executrix or on the trust return for the estate of the deceased.

Position:

No.

Reasons:

According to paragraph 60(o) of the Act, taxpayer are entitled to deduct legal and accounting fees with respect to objections or appeals of their own assessments. In addition, the policy in IT-99R4 only covers legal and accounting fees incurred with respect to an audit of a taxpayer's own return.

XXXXXXXXXX J. Gibbons
5-980585

Attention: XXXXXXXXXX

April 16, 1998

Dear XXXXXXXXXX:

We are replying to your letter of March 5, 1998, in which you inquire whether accounting and legal fees incurred with respect to a deceased taxpayer’s income tax return can be deducted either on the terminal return of the deceased taxpayer or on the return of the executor or executrix of the estate.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. The following comments are, therefore, of a general nature only.

According to paragraph 60(o) of the Income Tax Act (the “Act”), taxpayers are entitled to deduct fees incurred in preparing, instituting or prosecuting an objection or an appeal in respect of an assessment of tax, interest or penalties under the Act. In addition, as indicated in paragraph 6 of Interpretation Bulletin IT-99R4, it is the Department’s practice to allow a taxpayer to deduct amounts expended in connection with legal and accounting fees incurred for advice and assistance in making representations after having been informed that the taxpayer’s income or tax is to be revised, whether or not a formal notice of objection or appeal is subsequently filed.

In the situation described in your letter, the accounting and legal fees were incurred by the executrix for advice and assistance in respect of an audit of a deceased taxpayer’s income tax return. Accordingly, paragraph 60(o) of the Act would not apply.

As regards your statement that this situation falls within the spirit of the fairness provisions, we are of the view that this is not the case. Generally, the fairness provisions allow the Department to provide relief by (i) waiving or cancelling interest or penalties, (ii) accepting late, amended or revoked elections, and (iii) issuing refunds beyond the normal three year period. The Department has no authority to allow deductions that are not expressly permitted by the Act.

We trust that these comments will be of assistance.

P. Spice
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch