CRA finds that interest but not penalties on municipal taxes incurred as a business expense are deductible

Regarding interest on municipal taxes, CRA stated:

[I]nterest charged on an unpaid balance of property taxes will be deductible if the property taxes themselves are deductible.

Regarding a tardiness penalty of 0.5% per month of the unpaid taxes added by a municipality pursuant to s. 250.1 of the Quebec Act respecting municipal taxation ("AMT"), CRA stated:

[S]ection 67.6 … prohibits the deduction in computing income of any penalty imposed under the laws of a country or a political subdivision thereof. A penalty imposed under section 250.1 of the AMT therefore comes within this provision and cannot be deducted in computing business income.

It did not discuss whether the “penalty” was in substance something else such as interest.

Neal Armstrong. Summaries of 26 June 2020 External T.I. 2017-0688121E5 F under s. 18(1)(a) – income-producing purpose, and s. 67.6.