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.
Principal Issues: Whether legal fees incurred to defend against involuntary commitment are deductible?
Reasons: There is no provision in the Income Tax Act that would permit such a deduction.
September 6, 2006
Thank you for your letters received on July 24, 2006, about income tax issues concerning your client, XXXXXXXXXX.
I understand that Mr. Bob Skulski, an official of the Canada Revenue Agency (CRA), spoke to you and you agreed that the Income Tax Rulings Directorate could respond to you regarding three of the four tax issues you raised.
In your letter, you state that the legal fees XXXXXXXXXX incurred to defend himself against involuntary commitment should be allowed as an income deduction. Paragraph 8(1)(b) of the Income Tax Act allows an income deduction for any amounts a taxpayer pays to collect or establish a right to salary or wages owed to the taxpayer by the taxpayer's employer or former employer. Additionally, paragraph 60(o.1) of the Act allows the deduction, subject to certain limitations, of legal expenses paid to collect or establish a right to a retiring allowance, including a right to damages for wrongful dismissal. The tax treatment of legal expenses is discussed in Interpretation Bulletin IT-99R5, Legal and Accounting Fees. This publication can be accessed on the Internet at www.cra.gc.ca. However, I must confirm that neither paragraph 8(1)(b) nor paragraph 60(o.1) permits a deduction for the type of legal expenses your client incurred.
The CRA is responsible for administering tax legislation as enacted by Parliament. Whether legal expenses to defend oneself against involuntary commitment should be allowed as an income deduction or a tax credit relates to tax policy, which is the responsibility of the Department of Finance Canada. I am therefore forwarding a copy of your correspondence to the Honourable James M. Flaherty, Minister of Finance, for his consideration.
I trust that the above information will assist you in responding to
The Honourable Carol Skelton, P.C., M.P.
c.c.: The Honourable James M. Flaherty, P.C., M.P.
Minister of Finance
House of Commons
Ottawa ON K1A 0A6
August 21, 2006
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