Deduction of Professional Fees to Defend Voluntary Disclosure Filing Position

Posted: May 17, 2015

The Canada Revenue Agency confirmed in a roundtable discussion in January 2016 that professional fees related to the defence of a Canadian taxpayer’s filing positions under a CRA voluntary disclosure application after it has been accepted are deductible under paragraph 60(o) of the Canadian Income Tax Act, which permits the deduction of legal or other fees related to a tax objection. This means that if there is a dispute with the CRA about the tax amnesty once it has been submitted, those fees incurred by the Canadian tax lawyer or the accountant are deductible, and should therefore be billed separately. CRA stated that for greater certainty, professional fees are not deductible to the extent they relate to the filing of the voluntary disclosure unless they relate to a business, in which case they may be deductible under paragraph 20(1)(cc). The rule has always been that fees incurred to file the CRA voluntary disclosure are generally not deductible. Accounting fees paid to prepare the income tax returns related to the VDP filings will generally not be deductible either. A CRA voluntary disclosure submission is primarily a legal tax procedure that can on occasion lead to a tax court battle, so should be submitted by a Toronto tax lawyer. The related tax returns or T1135 forms are tax compliance filings and should therefore be prepared by a tax accountant and reviewed and submitted by the Canadian tax lawyer. The voluntary disclosure process should be collaborative with both a Canadian tax attorney and an accountant involved. The VDP submission should not be made by an accountant and the tax returns should not be prepared by a tax law firm. In both of those cases the Canadian tax professional is doing work that should be handled by the other professional and the Canadian taxpayer is not being properly served and may not have the protection of professional liability insurance if there is a problem.


"These articles provide information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."


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