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 the legal fees incurred by a taxpayer with respect to a voluntary disclosure are an allowable deduction according to the Income Tax Act.
Position: No.
Reasons: Our position is the professional fees relating to the filing of a voluntary disclosure do not meet the requirements of the provisions of subsection 60(o) of the Act due to the fact that they do not relate to an objection or appeal. In addition, it is our view that these fees were not incurred to earn income from a business or property. Therefore they are not deductible under any other section of the Act.
XXXXXXXXXX 2012-043783
Gillian Godson
June 5, 2012
Dear XXXXXXXXXX:
Re: Professional Fees
We are writing in reply to your letter of February 21, 2012, regarding the tax treatment of the professional fees incurred with respect to a voluntary disclosure by a taxpayer. We apologize for the delay in responding.
The Voluntary Disclosure Program allows taxpayers to come forward and correct inaccurate or incomplete information or to disclose information they have not reported during previous dealings with the Canada Revenue Agency (the “CRA”). Taxpayers may avoid being penalized or prosecuted if they make a valid disclosure. In your inquiry you indicated that you incurred legal fees relating to your voluntary disclosure made in the 2010 taxation year with respect to the disclosure of your foreign investment income.
Generally, subsection 60(o) of the Income Tax Act (the “Act”) provides that a taxpayer may deduct the legal or accounting fees or expenses incurred for advice or assistance in preparing, instituting or prosecuting an objection or appeal in the circumstances outlined in Interpretation Bulletin IT-99R5 – Legal and Accounting Fees which can be found on Canada Revenue Agency’s website at http://www.cra-arc.gc.ca/E/pub/tp/it99r5-consolid/it99r5-consolid-e.html. However, it is our view that any legal or accounting fees or expenses relating to the filing of a voluntary disclosure are not deductible by the taxpayer under subsection 60(o) of the Act as they do not relate to an objection or an appeal.
In addition, reasonable fees and costs incurred to obtain advice and assistance in preparing and filing returns for income tax purposes may be deductible under section 9 of the Act, to the extent that the expense is incurred to earn income from a business or property by the taxpayer. In our view, however, legal expenses incurred with respect to a voluntary disclosure are not incurred to earn income from a business or property.
Accordingly, a deduction for these legal expenses would not be permitted under the Act.
We trust that these comments will be of assistance.
Yours truly,
Terry Young, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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