Do you deduct your accounting fees to prepare the Estate T3 return? Some accounting are deducting them on Schedule 8, whiles others are not.
Fees to prepare income tax returns are not deductible except to the extent that they relate to business or property income. So if the estate has business income, at least part of the fee could be deductible. If it has investments that require an amount of work in summarizing or analyzing them in order to determine taxable income, again at least part of the fee could be deductible.
It’s certainly true that some tax preparers deduct tax preparation fees in situations where they are not deductible. Many years ago I was working with a mid-sized firm as their tax specialist, and brought to the partners’ attention that such fees were being deducted on T1 returns in situations when they shouldn’t be, and their response was just to claim them anyway since it was unlikely to be challenged by CRA. But in my own firm I don’t deduct any fees that should not be deducted.
I think that the argument to make is that ALL financial assembly of a Trust Return is done on behalf of the Trustee…and that (at best) only the final piece of work is actually “tax”. Ergo the financial assembly is “accounting” and then either include or not the remainder as you choose. But I’d claim - at least - all the parts that represent “management of the trust” vs actual reporting.
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Yes. They’re “carrying charges” and you can deduct them on Schedule 8 accordingly, always.
This is incorrect. Carrying charges apply to investment income, so if significant work is required related to investments for the tax return is required, then at least a portion of the fee would qualify as a carrying charge. But tax preparation fees are NOT carrying charges by default, and they are certainly not always deductible.
The OP specifically said “accounting fees”, not just tax prep fees. You wouldn’t be filing an estate return if there was no income from business or property to file. And as @SmallBizGuy says, your service probably extends far beyond just tax prep for these types of returns anyway. So yes, I would deduct accounting fees (including those to prepare the tax return) on an estate return.
They said “accounting fees to prepare an estate return.”
Simply having property income is not sufficient to be able to claim the fees. If the property income is reported on T5s or what have you, and the work lies in preparing the return itself rather than in needing to summarize or analyze investment transactions specifically, then the fees would not be deductible.
Estate returns can have other sources of income than business or property, of course. The CPP death benefit leaps to mind as an obvious example.
I have a vague recollection of a TCC case involving someone (don’t remember if individual or trust though) with a pile of T5s, investment transactions, gains and losses etc…and the fees for accounting were allowed.
Note the distinction between “accounting” and “inputting the numbers on a tax return” though. Assembly of base information, verification of same and calculation of exchange gains, losses etc is certainly qulifiable as “accounting” IMO.
Shades of grey. Fifty of them. 
That’s what makes tax fun!
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Absolutely. The more involved the investment transactions are to account for, the more likely the fees will be deductible.
I’m not sure we have the same interpretation here. Carrying charges, as interpreted by CRA themselves, do not solely relate to investment income. Accounting preparation fees fall into the scope of this definition but do not necessarily have to be attributed to the preparation of a return that is reporting on investment income.
Carrying charges also include a variety of legal expenses incurred to recover property interests or wage entitlements.
Accounting fees - as OP mentioned - with regard to estate preparations are deductible.
My experience at a national sized firm was to defer recognition of preparation fees and bank charges in a year where no income was recognized on a T3. But inevitabley, they were always recognized.
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It’s an application of s.9 and p.18(1)(a) of the Act. Accounting fees are deductible to the extent that they relate to gaining or producing business or property income. Entering some T5s into a T3 does not inherently meet that test. That’s why such fees can be deductible with respect to property income, but are not necessarily. It depends on the circumstances.
Since we’re discussing accounting fees related to preparing a return, the other things that qualify as carrying charges are irrelevant.
And some T3s have nothing to report as income other than a CPP death benefit, and on those returns the accounting fees would certainly not be deductible.
As such, accounting fees can be deductible as carrying charges, but are not automatically so.
I realize that deducting them in all cases is fairly common practice, and is rarely challenged by CRA, but that doesn’t make it best practice.
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Had to dig this up via 1998 … - Interpretation Bulletin IT-99R5 notes that CRA does apply reasonableness when accounting for preparation fees, quoting that “Reasonable fees and expenses incurred for advice and assistance in preparing and filing of returns for income tax purposes are normally deductible by virtue of Section 9 and are not limited under paragraph 18(1)(a) in computing business or property income to which such returns relate”.
I knew I saw it somewhere, but wow I didn’t recall it being that old lol
Estate-Trusts-Pension-Journal-Dec-8-2011.pdf (284.4 KB)
it99r5-consolid-e.pdf (55.9 KB)
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