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Legal Fees Expense

My customer was denied death benefits but fought and won. She has $35,000 in legal fees; at the end, a person apologized and said it should never have gone as far as it did - that she was obviously entitled to the benefit. Are the legal fees deductible?

You would need to investigate more about the exact nature of the Death Benefits.
On its face, it seems unlikely that it would fall under S8(1)(b) or S60(o.1). More investigation of the facts needed if you want to try…

Thanks, Joe. I will study those sections. I just know that after fighting CPP for 7 years, she was told she was right all along and has now been paid the benefits.

Are we talking about making fat-cat lawyers $35,000 richer over a spat about a CPP $2,500 death benefit (Box 18 on T4A (P ) ?

I haven’t looked at the file yet - the settlement was not the $2,500 death benefit - it totalled over $50,000. and relates to the past 7 years.

Better double check with the client the breakdown of the settlement. Was any portion of it for reimbursement of legal fees? And if not did the court order the government to pay the legal fees of your client on top of the settlement? I have have had clients bring me legal fees to deduct and then later find out they were reimbursed. Good chance if you claim this it will be reviewed.

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Yes, you need to document, document, document this one. They have reviewed every claim I’ve ever had for legal fees over about $10,000, even on multimillion dollar returns.

Thanks, all for the help. CPP settled out of court on second appeal.

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I would love to know what you found in your research. The claiming of legal fees less reimbursements for the collection of wages, retiring allowances, and pension benefits is allowable within limits. However death benefit was not included in any of the links below.

Here are some links that I found.

https://turbotax.intuit.ca/tips/are-all-legal-fees-fully-tax-deductible-6542

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.

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-232-other-deductions/line-232-legal-fees.html

you paid fees to collect (or establish a right to) a retiring allowance or pension benefit. However, you can claim only up to the retiring allowance or pension income you received in the year, minus any part of these amounts transferred to a registered retirement savings plan or registered pension plan. You can carry forward, for up to 7 years, legal fees you cannot claim in the year.

You must reduce your claim by any award or reimbursements you received for these expenses. If you are awarded the cost of your deductible legal fees in a future year, include that amount in your income for that year.

For more information about other legal fees you may deduct, see Interpretation Bulletin IT-99, Legal and Accounting Fees.

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it99r5-consolid.html

We will be applying the legal fees against the “Survivor Benefit” received.

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Hi … New Legal Fees Question…

Legal fees that are deemed deductible…IT-99r5… P17… to have successfully argued for Child Support. Have appropriate legal documentation to back this up. The actual question is:

Lawyer gave two receipts one for 2018 and one for 2019… Legal proceedings due to a continuance were held in both years but the decision only came in 2019

Is the taxpayer entitled to a claim in each year… or the entire fee is claimed in the year of the decision ?

Your help is greatly appreciated.

It should not matter when the decision is made. The expense is allowed for pursuing the right to child support.

I know you’re talking about child support but if there is a spousal support issue, I have been successful in having CRA allow accounting fees related to a spousal support claim by the recipient on the basis that the accountant was required to work through the numbers on which the lawyers relied.

We had a claim refused because we claimed it in the year the money was received. The legal fees seem to have to be applied to the period in which the income was earned, not paid.