Tax Brief: Are Legal Fees Tax Deductible?
Burley v. The Queen
When it comes to legal expenses, the question as to whether or not those legal, accounting and other professional fee expenses can be deducted boils down to the question as to whether or not the expenses were incurred for the purpose of producing income from a business or property. In Stewart v. Canada the Supreme Court of Canada used a two-stage test for identifying a source of business or property income:
Is the activity undertaken in pursuit of profit or is it a personal endeavour?
If it is not a personal endeavour, is the source of the income a business or property?
When it comes to professional fee expenses to deduct, Section 18 of the Act details the general limitations on deductions: expenses are only deductible when it was incurred for the purpose of gaining or producing income from the business and expenses that are for personal purposes are disallowed. Furthermore, it is important to remember that expenses deemed “unreasonable” are also not allowed, even if otherwise deductible.
When it comes to determining whether expenses are deductible for tax purposes, make sure you use a qualified tax professional, to avoid costly tax errors. For more details on the case decision, refer to the decision link.
Questions in how the above matter may relate to you? Reach out to Blumenfeld Woznica & Co to see how this matter may impact your specific accounting and/or tax situation.
This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as account/tax opinion or advice.