By: Michael L. Williamson, Tax and Accounting Specialist
Many business owners are fully aware of some of the common legal expenses, such as drafting a shareholder’s agreement, reviewing the contents of a lease agreement, reviewing an employment agreement, etc. The list is extensive. You might also know that these expenses are all deductible to the business. The business gets the tax break.
But what are the expenses that are deductible by the individual? Let’s go over a few common legal and accounting expenses that are deductible to the average tax payer:
Accounting fees incurred to earn investment income
It is normal to deduct carrying charges associated with your investments, such as interest on money borrowed to earn interest, dividend and other royalty income. You can also fully deduct legal and accounting fees that are paid in connection with issuing bonds, debentures or mortgages.
Legal fees paid to collect, establish or increase the amount of support payments
The tax treatment of legal fees paid during a separation and divorce can be complicated. However, most of the legal fees incurred are not deductible since they are considered a personal or living expense. On the other hand, legal fees incurred with respect to support payments may be deductible. Their deductibility will depend on whether you’re the payer or the recipient of the support payments.
Legal expenses to obtain or collect wages
You can deduct legal fees that you paid in the year to collect, or to establish a right to collect, wages or a salary from an employer or a former employer. However, you must reduce your claim by any amount awarded to you for those fees, or any reimbursement you received for your legal fees.
Legal and Accounting fees for CRA representation
Here is one deduction that may go under the radar of most Canadians. That is the fees paid for advice or assistance in a CRA review, or to object or appeal an assessment. These fees paid are fully deductible in the year they are incurred. What does this mean for the Canadian tax payer? It means if you are ever served with a demand letter, or there is a review or reassessment of your tax return, the fees paid to assist you are fully deductible on your next tax return.
The information on this page is general in nature and does not consider your personal circumstance. To get help on your specific circumstance it is important to seek the advice of an accounting or financial professional.
Michael L. Williamson is a Tax and Accounting Specialist with Williamson Accounting. We provide valuable Accounting and Tax Services to individuals and small businesses throughout the Greater Toronto Area.
You might also be interested in…