Top court rules that legal fees are not tax deductible

Deschenes appealed a decision that denied him the deduction of legal fees on his income tax. iStock.
Deschenes appealed a decision that denied him the deduction of legal fees on his income tax. iStock.

Ever wonder if it is possible to deduct legal fees at tax time?

Well, wonder no more. It isn’t.

The Supreme Court of Canada has just rejected an appeal for a case that dealt with just this issue.

Deschênes v. Canada is a 2015 Federal Court of Appeal case that looked at whether a person could deduct legal fees in a case where he was trying to preserve his income-producing property interests.

In the original decision by the Tax Court of Canada, Michel Deschenes was appealing a decision from the Minister of National Revenue, which denied him tax deductions for legal fees in the amount of $21,609.00 for the 2011 tax year.

He claimed that he incurred legal fees due to a court matter in which he was trying to protect his property interests. The court disagreed, because a) he never owned the property in question, and b) inheriting money is not income from property.

The court added that even if it was an expense for the purpose of making income from a property, it wouldn’t matter, because it would be a capital expense. Capital expenses are not deductible according to the Income Tax Act of Canada.

The act was used by the court to explain that deductions were only possible if they were from business or property that were actually income producing.

The court ruled that the legal fee in the case was neither a business expense nor an expense for the purpose of earning income from a property and didn’t qualify as being a tax deductible expense.

The court of appeal upheld the tax court’s decision, as it also failed to see how the deduction could be claimed to be income for the purposes of the act.

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