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.
| Mississauga D.O. |
HEAD OFFICE |
| R.K. Khosla, Chief of Audit |
Rulings Directorate |
| |
J.D. Brooks 957-2103 |
Attention: R. Bernardo Business Enquiries
923881
Deductibility of Legal Fees
We are writing to you in reply to your memorandum which we received on December 30, 1992 in which requested our opinion as to the deductibility of legal fees in a given fact situation. A taxpayer sold a MURB in XXXXXXXXXX but she had to take the purchaser to court in order to receive the full proceeds of disposition. The proceeds of disposition were not fully received until XXXXXXXXXX. In attempting to collect the proceeds of disposition, the taxpayer has incurred legal fees XXXXXXXXXX You queried whether such fees would be deductible, and if so, in which year(s).
Our Comments:
In calculating the amount of a taxpayer's gain under paragraph 40(1)(a) of the Income Tax Act, a taxpayer is able to effectively deduct from the proceeds of disposition any outlays and expenses to the extent that they were made or incurred by him for the purpose of making the disposition. Since the legal fees in question were not incurred for the purpose of making the sale which occurred in XXXXXXXXXX but rather were incurred in order to collect the proceeds of disposition with respect to the sale, these legal fees do not affect the calculation of the gain as determined under paragraph 40(1)(a).
Paragraph 20(1)(b) of the Act provides for making a deduction in respect of a taxpayer's cumulative eligible capital (as defined in paragraph 14(5)(a) of the Act) in respect of a business. However, as stated in paragraph 2 of Interpretation Bulletin 143R2, an outlay or expense made or incurred with respect to a capital gain or a capital loss will not be an eligible capital expenditure since it is not made or incurred for the purpose of gaining or producing income from a business.
In conclusion, it is our opinion that the legal fees in question would not be deductible to the taxpayer.
R. Albert for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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