12 March 2012 External T.I. 2011-0436011E5 - legal fees

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 qualify as medical expenses?

Position: Based on the information provided, it appears that these legal fees do not qualify as medical expenses nor do they appear to be deductible as legal fees under another provision of the Income Tax Act.

Reasons: The law.

XXXXXXXXXX 

									2012-043601
	

March 12, 2012

Dear XXXXXXXXXX :

Re: Medical Expense Tax Credit

This is in response to your letter of February 7, 2012, inquiring about whether the cost of legal fees for medical reports qualifies as a medical expense for purposes of the medical expense tax credit ("METC").

XXXXXXXXXX and your lawyers paid for medical reports from a medical practitioner regarding XXXXXXXXXX medical condition for purposes of a court case. XXXXXXXXXX and as part of your legal fees, your lawyers have now billed you for the cost of the medical reports. You have asked whether the cost of legal fees paid to your lawyers for medical reports would be considered to be eligible medical expenses for the purposes of the METC.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Also, where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Nonetheless, we are prepared to offer the following general comments.

Unless there is a specific provision in the Income Tax Act (the "Act") providing for the deduction of legal fees, for example, paragraphs 8(1)(b), 60(o) or (o.1) of the Act, legal fees are only deductible to the extent that they constitute reasonable non-capital expenditures incurred for the purpose of gaining or producing income from a business or property. Alternatively, in the case where a patient needs a bone marrow or organ transplant, reasonable legal fees incurred to locate a compatible donor and to arrange for the transplant qualify for the METC under paragraph 118.2(2)(l.1) of the Act.

Medical expenses which are eligible for the METC are limited to those described in subsection 118.2(2) of the Act. If a particular expenditure is not described as an eligible medical expense in subsection 118.2(2) of the Act, or if the conditions under which the expenditure would qualify are not met, the expenditure does not qualify for purposes of the METC, even though the expenditure may have been incurred for medical reasons.

Based on the information provided, it appears that the legal fees incurred in the circumstances described in your letter would not qualify as medical expenses for purposes of the METC nor would these fees be deductible under another provision of the Act for income tax purposes.

It should also be noted that in the case of litigation, often the plaintiff is entitled to be reimbursed for expert reports through costs or as terms of settlement. If such entitlement exists, the amount cannot be claimed as a medical expense pursuant to subsection 118.2(3) of the Act unless the amount of the reimbursement is required to be included in computing income and is not deductible in computing taxable income.

We trust that these comments will be of assistance.

Yours truly,

G. Moore
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch