2015-0578131I7 Deduction - cost being awarded by a court

Principal Issues: Can a taxpayer deduct the costs that he/she was ordered to pay as a consequence of costs being awarded by a court?

Position: Generally, yes.

Reasons: Legal costs otherwise deductible would generally include the costs that a taxpayer is required to pay as a consequence of costs being awarded by a court.

Author: Landry, Isabelle
Section: 9(1); 18(1)a); 248(1) « biens »

                                                                                                                                            May 2, 2016

        Ms. Martine Gautreau                                                                                                 HEADQUARTERS
        Programs Officer                                                                                                         Income Tax Rulings
        Taxpayer Services Directorate                                                                                    Directorate
        Assessment, Benefit and Service Branch                                                                   Isabelle Landry
        Jonquière Tax Centre
                                                                                                                                             2015-057813

      Re: Legal costs

We are writing this letter in response to your email wherein you requested our comments as to whether a taxpayer is entitled to a deduction under the Income Tax Act for the costs that he/she is required to pay as a consequence of costs being awarded by a court. 

Our Comments

In the case where a taxpayer is unsuccessful in a legal proceeding and is required to pay costs awarded by a court, we are of the opinion that such costs would generally be included in the amount of legal costs paid by the taxpayer related to that legal proceeding. Therefore, if the legal costs of a taxpayer related to the legal proceeding are otherwise deductible, the costs that the taxpayer is required to pay as a consequence of costs being awarded by the court in that legal proceeding will also generally be deductible.

The question of whether legal costs are deductible is a question of fact that can only be ascertained after a review of all the facts, circumstances and relevant documents of a particular situation.

We trust that these comments will be of assistance to you.

Michel Lambert, CPA, CA, M. Fisc.
Manager
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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