Are All Legal Fees Fully Tax Deductible?

Facing troubling or problematic divorce proceedings? Injured on the job? Know that you can deduct some legal fees for advice or assistance related to tax issues, retiring allowance, pension benefits, child support, salary and wages. If you’re self-employed, you may also deduct legal fees if incurred for business-related purposes.

Legal Fees for Tax Advice or Assistance

You can deduct the legal fees you incurred for advice or assistance to respond to the Canada Revenue Agency when it reviews your income, deductions or credits. This also applies when the CRA audits your tax returns from previous years.

The legal fees you incurred in an objection or appeal for an assessment or decision by the CRA under the following are also deductible:

  • the Income Tax Act
  • the Unemployment Insurance Act
  • the Employment Insurance Act
  • the Canada Pension Plan
  • the Quebec Pension Plan

Legal Fees Concerning a Retiring Allowance or Pension Benefit

Your legal fees from collecting or confirming a right to a retiring allowance or pension benefit are deductible up to a certain yearly limit. Currently, that limit is the amount of retiring allowance or pension income received in the year, minus any part of these amounts transferred to a registered retirement savings plan or registered pension plan. The legal fees you do not claim in the current year can be carried forward for up to seven years.

Legal Fees Related to Child Support

The legal fees you pay while trying to make child support payments non-taxable are deductible. In addition, your legal fees from attempting to collect support payments owed by a current spouse, former spouse, common-law partner or the natural parent of the child are also deductible.

However, the legal fees you pay to get a separation or divorce or to establish custody or visitation arrangements for a child cannot be claimed as tax-deductible. If you pay child support, you cannot claim any of the legal costs incurred to establish, negotiate or contest the amount of the support payments.

Legal Fees to Collect Salary or Wages

You can deduct the legal fees you paid to collect or establish your right to salary, wages or other amounts related to employment income directly paid by your employer. It is not a condition that the amount believed to be owed is actually collected just that it is a legitimate attempt to collect what you believe that you are owed. However, the amount you sought must clearly be for your salary or the wages you are owed. The claim for these legal fees must be reduced by any amount you are awarded, along with any reimbursement you receive for the legal expenses you incurred.

Business-Related Legal Fees

If you are self-employed and you incur legal fees in the course of running your business, then the total amount of these legal fees becomes a deductible business expense. These fees are deducted as an expense in the business’s income statement.

Where the legal fees are claimed varies depending upon the type of fees incurred:

  • Line 232 is the spot for fees relating to tax advice or assistance, as well as the fees associated with making child support payments non-taxable.
  • If you had legal fees relating to support payments made by a former spouse or common-law partner, such as expenses to collect late payments, these amounts are inputted on line 221.
  • Legal fees related to collecting salary and wages are deducted on line 229 of the individual tax return.