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: The deductibility of legal fees that may relate to human rights violations and compensation for lost wages. (Paragraph 8(1)(b)).
Position: General comments were provided
Reasons: All the relevant information was not available
XXXXXXXXXX 2000-003466
M. Eisner
September 21, 2000
Dear XXXXXXXXXX:
Re: Deductibility of Legal and Consulting Expenses
This is in reply to your letter of June 26, 2000 concerning the above-noted subject.
You are an employee of XXXXXXXXXX. In XXXXXXXXXX, you commenced to receive long-term disability payments as a result of illness. In XXXXXXXXXX, you returned to work although you indicated that your work was undermined by your superiors and that the work environment was intolerable. In XXXXXXXXXX, your physician again suggested that you commence another period of long-term disability because of your illness. In XXXXXXXXXX, you engaged the services of a lawyer in connection with a human rights complaint. In XXXXXXXXXX, your physician indicated that you could resume work on XXXXXXXXXX. However, your employer questioned whether you were capable of returning to work. In order to establish that you were capable of working, you engaged the services of another lawyer in XXXXXXXXXX. During the course of these happenings, you also filed human rights complaints and privacy complaints. One of the human rights complaints included the possible recoupement of lost wages ($XXXXXXXXXX) for the removal of your XXXXXXXXXX position on XXXXXXXXXX, and lost wages from XXXXXXXXXX On XXXXXXXXXX, you were allowed to return to work.
In the above circumstances, you incurred legal costs of $XXXXXXXXXX in XXXXXXXXXX and approximately $XXXXXXXXXX in XXXXXXXXXX. In addition, you incurred consulting fees of $XXXXXXXXXX in XXXXXXXXXX, with respect to the preparation of a resume to facilitate your return to work. You have asked about the deductibility of these fees.
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. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Agency.
In order to determine the deductibility of legal fees, it is necessary to review all the relevant facts and documentation. As discussed below, it may also be necessary to review the outcome of the claim against your employer in order to determine the deductibility of the related fees. However, we are providing you with the following general comments on your situation.
Paragraph 8(1)(b) of the Income Tax Act (the "Act") permits a deduction in computing income from an office or employment, for legal fees paid by a taxpayer in the year to collect or establish a right to salary or wages owed by an employer or former employer. If a taxpayer is not successful in court or otherwise fails to establish that some amount is owed, no deduction for expenses is allowed.
For other general comments on deductibility of legal fees related to the collection of salaries and wages, please consider the comments in paragraphs 22 to 24 of Interpretation Bulletin IT-99R5 "Legal and Accounting Fees."
We trust that our comments are of assistance to you.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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