All About Estates

Professional fees incurred in the context of a litigation with CRA

On occasion, the personal representative of an estate may have to incur costs to either settle or disclose a matter with the Canada Revenue Agency (CRA). In a translated technical interpretation, the CRA provided some of its own guidance on how to navigate the relevant rule in the Income Tax Act (ITA).

The ITA generally permits a deduction in computing a taxpayer’s income for a taxation year for amounts paid as expenses or professional fees incurred in preparing, instituting or prosecuting an objection to, or an appeal in relation to, an assessment of tax, interest and penalties imposed under the ITA. With respect to professional fees or expenses incurred in connection with a voluntary disclosure, the CRA has stated that once the disclosure was accepted, the professional fees or expenses would be deductible. Furthermore, the CRA has stated that such professional fees or expenses could generally be deductible to the extent that they are directly related to the reporting of business or property income and are not capital expenditures.

The CRA went on to comment that professional fees or expenses incurred to make an application for relief from interest and penalties are not deductible.

Having some knowledge of this information may allow the personal representative of an estate some insight as to whether or not to pursue a matter with the CRA.

About Derek de Gannes
Derek A. de Gannes: Senior Director, Private Client Services of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: derek.degannes@rsmcanada.com

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