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 legal fees incurred by a taxpayer in connection with a dispute with a sibling over farmland is tax deductible.
Position: No.
Reasons: Except where there is a specific provision in the Act dealing with legal fees, such as paragraph 8(1)(b) or 60(o.1), legal fees are deductible only to the extent that they (a) are incurred for the purpose of gaining or producing income from a business or property, and (b) are not outlays of a capital nature. Further, legal fees incurred in settling an estate would not be considered to have been incurred on the acquisition of capital property and thus would not be included as part of the cost of property.
XXXXXXXXXX 2000-000813
J. Gibbons
Attention: XXXXXXXXXX
March 1, 2000
Dear XXXXXXXXXX:
We are replying to your letter, which we received on February 16, 2000, concerning the deductibility of legal fees. As we understand the facts, the legal fees were incurred by a taxpayer in connection with a dispute with a sibling over farmland inherited from the parents. You requested our views whether the legal fees incurred would be a deductible business expense.
As requested, we have considered your question and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless 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. Thus, our comments are of a general nature only.
As indicated in paragraph 1 of IT-99R5, "Legal and Accounting Fees," except where there is a specific provision in the Act dealing with legal or accounting fees, such as paragraph 8(1)(b) or 60(o.1), legal and accounting fees are deductible only to the extent that they (a) are incurred for the purpose of gaining or producing income from a business or property, and (b) are not outlays of a capital nature. Further, as indicated in paragraph 14 of this bulletin, legal and accounting fees incurred on the acquisition of capital property are normally included as part of the cost of the property. In our view, legal fees incurred for the purpose of settling an estate would neither be a deductible business expense (since they are not incurred for the purpose of earning income from the business) nor considered to have been incurred on the acquisition of property.
We trust that these comments will be of assistance.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
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