Principal Questions: Are professional fees deductible under paragraph 60(o) where they relate to the defence of a taxpayer's filing positions under a voluntary disclosure once it has been accepted?
Position Adopted: Yes. However, for greater certainty, professional fees are not deductible to the extent they relate to the filing of the voluntary disclosure unless they relate to a business, in which case they may be deductible under 20(1)(cc).
Reasons: Prior positions.
Ordre des CPA du Québec - Roundtable on personal taxation
January 21, 2016 Conference
Question 7 - Deductibility of professional fees incurred in connection with a voluntary disclosure
Does the CRA allow the deduction of professional fees incurred by the taxpayer to defend its claim (to the extent that it has not abandoned its objection and appeal rights) from the time it was informed by the CRA that its income or tax for a taxation year will be revised under the voluntary disclosure program ("VDP")?
CRA Response
The CRA considers that expenses of making a voluntary disclosure are not deductible under paragraph 60(o) of the Act and would generally not be made or incurred by the taxpayer for the purpose of gaining or producing income from a business or property. However, where a taxpayer earns income from a business, the expenses of making a voluntary disclosure that relates to that business could be deductible as expenses of making representations to a government under paragraph 20(1)(cc).
Furthermore, once the CRA advises the taxpayer that it accepts the voluntary disclosure and that it will revise the income or the tax payable of the latter under the VDP, we generally will allow the deduction, under paragraph 60(o), for professional fees incurred from that time onwards by the taxpayer in advancing its claims respecting the revision.
Yves Grondin
January 21, 2016
2016-062573