9 March 2011 External T.I. 2011-0393241E5 - Legal fees related to workers' board decision

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 fees paid to obtain a decision under the Workplace and Safety Insurance Board would qualify as a deduction for income tax purposes or would qualify for the medical expense tax credit.

Position: No.

Reasons: There is no provision in the Act under which such fees would be deductible and the fees are not in the list of eligible medical expenses in the Act.

XXXXXXXXXX 					2011-039324
						J. Gibbons, CGA
March 9, 2011

Dear XXXXXXXXXX :

Re: Legal Fees

This is in reply to your letter dated June 10, 2011, concerning whether legal fees paid by you for legal services to obtain a decision from the Workplace and Safety Insurance Board (the "WSIB") of Ontario are deductible for income tax purposes. Your claim under the WSIB related to injuries you suffered in XXXXXXXXXX while you worked for XXXXXXXXXX .

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.

Generally, payments received by a taxpayer under an employees' or workers' compensation law of Canada or a province in respect of an injury, disability or death will have little or no effect on income taxes since they are included in income under paragraph 56(1)(v) of the Income Tax Act (the "Act") and deducted in computing taxable income under subparagraph 110(1)(f)(ii) of the Act. Thus, such payments will only affect non-refundable tax credits that are based on net income. In addition, certain Government entitlements such as the Old Age Security, the Child Tax Benefit, and the GST/HST credit, are also tied to net income and may be affected by these types of payments.

Unless there is a specific provision in 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 medical expense tax credit ("METC") under paragraph 118.2(2)(l.1) of the Act.

Based on the foregoing, it is our view that the legal fees incurred in the circumstances described in your letter would not be deductible under the Act or qualify for the METC.

We trust 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