Principal Issues: Whether professional fees incurred are deductible under subparagraph 60(o)(i) or section 9 in the following scenarios: (1) Fees incurred during an audit, (2) Fees incurred to request for a relief of interest and/or penalties and (3) Fees to object a decision from le Tribunal administratif du Québec regarding a personal tax credit.
Position: (1) Generally deductible under subparagraph 60(o)(i). (2) Generally not deductible under section 9 and subparagraph 60(o)(i). (3) Generally deductible under subparagraph 60(o)(i).
Reasons: The law, administrative and previous positions.
FEDERAL TAX ROUNDTABLE OCTOBER 7, 2019
2019 APFF CONFERENCE
Question 5
Professional fees in a litigation context
Paragraph 60(o) generally permits a deduction in computing a taxpayer's income for a taxation year for amounts paid in respect of fees or expenses incurred in preparing, instituting or prosecuting an objection to, or an appeal in relation to, an assessment of tax, interest and penalties, or an assessment or a decision made under the Canada Pension Plan or a provincial pension plan.
With respect to professional fees or expenses incurred in connection with a voluntary disclosure, the CRA has stated that once the disclosure is accepted, the professional fees or expenses will be deductible under paragraph 60(o). In addition, the CRA has stated that such professional fees or expenses could generally be deductible under section 9 to the extent that they are directly related to the reporting of income from a business or property and are not capital expenditures.
Questions to the CRA
We would like to know if the following professional fees or expenses are deductible under subparagraph 60(o)(i) or section 9:
(a) professional fees or expenses incurred in connection with an audit;
(b) professional fees or expenses incurred to make a request for relief from interest and/or penalties;
(c) professional fees or expenses incurred to present a challenge before the Quebec Administrative Tribunal following a decision rendered by Retraite Québec concerning the tax credit granting an allowance to families.
Assume that:
- the professional fees or expenses were incurred in connection with inquiries, litigation or a request for information or relief with respect to tax, interest or penalties under the Income Tax Act or a provincial statute imposing a tax similar to that imposed by the Income Tax Act;
- the affected taxpayer may be under audit, at the objection stage, or have been subject to a decision of a governmental authority, with an amount, credit, or allowance having been denied.
CRA Responses
General Comments
Professional fees or expenses referred to in paragraph 60(o) are generally deductible under that paragraph when incurred in an objection or an appeal within the meaning of that provision. The determination of that time is a question of fact.
Furthermore, in order to be deductible under section 9, professional fees or expenses incurred by a taxpayer must satisfy all the conditions provided in the Income Tax Act. In particular, they must be incurred in current activities, transactions or contracts that are necessary that are necessary or incidental to the gaining or producing of income from the business or property of the taxpayer.
The application of one or more provisions of the Income Tax Act requires the analysis of all facts relating to a particular case. As a result, and since the statement in this question is only a very brief description of the particular situations, the following comments may not apply in their entirety to a specific set of facts.
CRA Preliminary Response to Q.5(a)
We are of the view that subparagraph 60(o)(i) applies to fees or professional fees incurred as part of an audit from the time that the taxpayer was informed that the taxpayer was subject to an audit or new examination respecting the taxpayer’s tax return.
CRA Preliminary Response to Q.5(b)
In general, we are of the view that the amount of professional fees or expenses incurred to make a claim for interest and penalty relief is not deductible under section 9 or subparagraph 60(o)(i).
CRA Preliminary Response to Q.5(c)
We are of the view that the amount of the professional fees or expenses incurred to mount a challenge before the Administrative Tribunal of Québec following a decision rendered by Retraite Québec concerning the tax credit granting an allowance to families can generally be deductible under subparagraph 60(o)(i).
Guylaine Gladu
(343) 542-8592
October 11, 2019
2019-081264