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.
DEDUCTIBILITY OF PENALTIES AND INTEREST ON OTHER TAXES
QUESTION 40
Are fines, penalties and interest levied under the Excise Tax Act, the various provincial sales tax statutes, the various provincial capital tax statutes, the various provincial payroll tax statutes, and similar legislation deductible for income tax purposes?
DEPARTMENT'S POSITION
The Department's general position with respect to fines and penalties is stated in paragraph 2 of Interpretation Bulletin IT-104R2 dated May 28, 1993 as follows:
Judicial and statutory fines or penalties do not generally qualify as a deduction in computing income from a business or property under paragraph 18(1)(a), or as an eligible capital expenditure as defined in paragraph 14(5)(b) or as an outlay or expense for the purpose of making a disposition of capital property under subsection 40(1).
There is an exception to the above-noted general position if all of the tests and factors stated in paragraph 3 of IT-104R2 are met. Nevertheless, it is always a question of fact as to whether a fine or a penalty is deductible in computing income of a taxpayer by virtue of paragraph 18(1)(a).
Whether interest on a tax is deductible in computing income of a taxpayer by virtue of paragraph 18(1)(a) is also a question of fact to be determined. Generally, if the tax is a profit or income tax, such tax and interest on such tax are not deductible in computing income of a taxpayer because they are not incurred in the course of earning income but only incurred after income has been earned. Otherwise, they may be deductible except in the situation wherein paragraph 18(1)(m) or any other paragraph in section 18 applies.
CPTS June 17, 1993
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