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:
Can fees paid to a party other than a firm of barristers and solicitors qualify as legal expenses for the purposes of paragraph 8(1)(b) and 60(o.1)?
Position TAKEN:
Yes, to the extent that they pertain to the domain of law.
Reasons FOR POSITION TAKEN:
Legal expenses are considered to include amounts paid for services that are of a legal nature.
942430
XXXXXXXXXX M. Eisner
Attention: XXXXXXXXXX
March 24, 1995
Dear Madam:
Re: Deductibility of Legal Fees
Your letter of July 29, 1994 which was addressed to the Toronto District Taxation Office and concerns the deductibility of legal expenses paid by an individual to the XXXXXXXXXX has been referred to us for reply. We apologize for the delay in replying.
In your letter, you have indicated that
XXXXXXXXXX
The services offered by XXXXXXXXXX are similar to those provided by lawyers.
In the specific situation with which you are concerned, XXXXXXXXXX pursued a matter of wrongful dismissal on behalf of an individual and successfully negotiated a settlement for him or her.
With respect to the above situation, the issue of whether or not the fees paid by the individual to XXXXXXXXXX are deductible can only be determined following a review of all the relevant facts and documentation. Should you wish the Department's position on the deductibility of the fees, all the relevant facts and documentation should be submitted to the local Tax Services office. As a further comment, we note that for the purposes of representing the individual in that regard, an authorization from the individual should also be submitted.
We are, however, providing you with the following general comments.
Where an individual pays fees with respect to circumstances where the individual considers himself or herself to have been wrongfully dismissed, the determination of the extent that the fees are deductible normally involves a consideration of paragraphs 8(1)(b) and 60(o.1) of the Income Tax Act (the Act). Paragraph 8(1)(b) of the Act involves the deductibility of legal expenses paid with respect to salary or wages and paragraph 60(o.1), among other things, involves the deductibility of legal expenses paid with respect to a retiring allowance. For comments on the deductibility of legal fees pursuant to paragraphs 8(1)(b) or 60(o.1) of the Act, we refer you to paragraphs 19 to 23 of Interpretation Bulletin IT-99R4 "Legal and Accounting Fees" which has been enclosed. For your further information, we have enclosed a copy of Interpretation Bulletin IT-337R2 which discusses retiring allowances.
If the fees in the above circumstances were to be paid to a party other than a firm of barristers and solicitors (such a party could include XXXXXXXXXX), it is our general view that the fees would be regarded as being "legal expenses" for the purposes of paragraphs 8(1)(b) and 60(o.1) of the Act to the extent that they can be regarded as being for services pertaining to the domain of law. The fees that can be regarded as being "legal expenses" pursuant to these comments would be deductible to the extent that they qualify for such treatment pursuant to paragraphs 8(1)(b) and 60(o.1) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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