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: Are the legal costs awarded to the respondent deductible to the appellant?
Position: Yes
Reasons: Subparagraph 60(o)(i) entitles a taxpayer to deduct fees or expenses incurred in preparing, instituting or prosecuting an objection or an appeal in relation to an assessment of tax, interest or penalties under the Act or an Act of a Province that imposes a tax similar to the tax imposed under the Act.
April 25, 2014
Mr. Marc Grignon Income Tax Rulings
Canada Revenue Agency Directorate
Legislation Section Isabelle Brulotte, CPA, CA
Assessment and Benefit Services (613) 957-2046
Branch
Ottawa, ON 2014-052419
Attention: Mr. Grignon
Deductibility of legal fees
We are writing in response to your email dated March 11, 2014 as to whether legal fees incurred by the taxpayer as well as those required to be paid by the taxpayer to the respondent's legal representative as a consequences of costs being awarded by the Tax Court of Canada ("TCC") to the respondent are deductible under subsection 60(o)(i) of the Income Tax Act (the "Act").
Based on the information you provided to us, we understand the facts to be as follow.
Facts
1) Taxpayer claimed medical expense tax credit (METC) in XXXXXXXXXX, XXXXXXXXXX and XXXXXXXXXX.
2) The CRA reduced the taxpayer METC for each of these years and reassessed the taxpayer.
3) The reassessment created an income tax liability for the taxpayer.
4) The taxpayer appealed to the TCC to dispute the disallowance of certain medical expenses.
5) The taxpayer was not successful and the appeals were dismissed with costs.
Our Comments
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
Subparagraph 60(o)(i) of the Act allows a taxpayer to deduct "amounts paid by the taxpayer in the year in respect of fees or expenses incurred in preparing, instituting or prosecuting an objection to, or an appeal in relation to
(i) an assessment of tax, interest or penalties under this Act
The Canada Revenue Agency's ("CRA") has commented on subparagraph 60(o)(ii) of the Act to the effect that it permits a deduction for amounts paid by the taxpayer in the year in respect of fees or expenses in relation to a decision of an umpire under the Employment Insurance Act. Moreover, it is the CRA's view that such amounts would generally include the legal fees paid by the appellant to his own legal representative as well as those fees required to be paid by the appellant to the respondent's legal representative. Likewise, it is not always necessary that the fees relating to matters described in subsection 60(o) of the Act be paid to a lawyer.
Therefore, it is our view that the amounts deductible under subparagraph 60(o)(i) would generally include the legal fees paid by the appellant to his own legal representative as well as those legal fees required to be paid by the appellant to the respondent's legal representative as a consequence of costs being awarded by the TCC to the respondent.
We trust our comments will be of assistance.
Yours truly,
Stéphane Charette, CPA, CMA, MBA
Acting Manager
Business Income and Capital Transactions
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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