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 to be incurred by each member of a group of former employees will be deductible for income tax purposes. The legal fees are to be incurred in appealing a decision by the XXXXXXXXXX that denied the partial wind-up of the pension plan of the group of former employees.
Position: Maybe.
Reasons: Paragraph 60(o.1) of the Act allows a taxpayer to deduct, within certain limits, legal expenses paid to collect or establish a right to a pension benefit or retiring allowance, subject to specific quantum limits.
XXXXXXXXXX J. Gibbons, CGA
2000-002821
July 20, 2000
Dear XXXXXXXXXX:
Your letter of April 16, 2000, to the Hamilton Tax Services Office was forwarded to us for reply. You enquired whether legal fees to be incurred by each member of a group of former employees of XXXXXXXXXX (the "Corporation") will be deductible for income tax purposes. The legal fees are to be incurred in appealing a decision by the XXXXXXXXXX that denied the partial wind-up of the pension plan of the Corporation in respect of the group of former employees. The employees requested the wind-up as a result of losing their employment following a reorganization of the Corporation.
As requested, we have considered the situation outlined in your letter 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.
In your letter, you noted the statement on page 23 of the General Income Tax and Benefit Guide that legal expenses can be deducted for fees paid for advice or assistance in objecting to or appealing an assessment or decision under the Income Tax Act, the Unemployment Insurance Act, the Employment Insurance Act, the Canada Pension Plan and the Quebec Pension Plan. The authority for allowing this deduction comes from paragraph 60(o) of the Income Tax Act (the "Act") and, in our view, clearly does not permit the deduction of legal fees which are of the nature described in your letter. On the other hand, paragraph 60(o.1) of the Act allows a taxpayer to deduct, within certain limits, legal expenses paid to collect or establish a right to a pension benefit or retiring allowance.
The amount of the eligible legal fees paid that may be deducted under paragraph 60(o.1) is limited to the following amount:
(a) the amount of any retiring allowance or pension benefit related to those legal fees which is received and included in the taxpayer's income for the year or a previous year, plus
(b) any reimbursement of legal expenses included in the taxpayer's income under paragraph 56(1)(l.1) for the year or a preceding year, minus
(c) the amount of transfers to a Registered Pension Plan or Registered Retirement Savings Plan deducted pursuant to paragraph 60(j), (j.01), (j.1) or (j.2). This reduction is only required to be made to the extent that the amounts so transferred are amounts for which legal expenses eligible for deduction under paragraph 60(o.1) were incurred.
Only legal fees paid in connection with the income described above are eligible for deduction under paragraph 60(o.1). Legal fees which would otherwise be deductible under paragraph 60(o.1) except for the fact that they exceed the income limit therein may be carried forward and deducted in any of the seven subsequent years, to the extent that further related income arises and to the extent that the amounts in question were not previously deductible.
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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