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SCH 4 Tax Preparation Fee Deduction

Hello,

I am wondering if you can claim tax preparation invoice fees on SCH 4 as a deduction on a personal tax return that has simply employment income (no personal business, no T777). I have had two answers from different firms I have worked at.

Thank you!

Tax Preparation fees are never deductible to those reporting only employment income.

Good morning Laura:

It is not deductible from employment income unless the person is paid by commission in which case it can be claimed on the T777.

Regards

Jim

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If we have a client with investment income, we enter the prep fees on the S4.
If they are self-employed, we enter prep fees on that statement.

Strictly speaking, tax preparation fees are NEVER deductible. Accounting fees may be…

ITA Section 8 contains what can be deducted against Employment income.
“Tax preparation fees” do not appear there.

Edit: Other than the provisions of S8(1)(f)
"(f) where the taxpayer was employed in the year in connection with the selling of property or negotiating of contracts for the taxpayer’s employer, and
 (i) under the contract of employment was required to pay the taxpayer’s own expenses,
 (ii) was ordinarily required to carry on the duties of the employment away from the employer’s place of business,
 (iii) was remunerated in whole or part by commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated, and
 (iv) was not in receipt of an allowance for travel expenses in respect of the taxation year that was, by virtue of subparagraph 6(1)(b)(v), not included in computing the taxpayer’s income,
amounts expended by the taxpayer in the year for the purpose of earning the income from the employment (not exceeding the commissions or other similar amounts referred to in subparagraph 8(1)(f)(iii) and received by the taxpayer in the year) to the extent that those amounts were not
 (v) outlays, losses or replacements of capital or payments on account of capital, except as described in paragraph 8(1)(j),
 (vi) outlays or expenses that would, by virtue of paragraph 18(1)(l), not be deductible in computing the taxpayer’s income for the year if the employment were a business carried on by the taxpayer, or
 (vii) amounts the payment of which reduced the amount that would otherwise be included in computing the taxpayer’s income for the year because of paragraph 6(1)(e);"

Accounting fees and tax advice have always been deductible. A few years ago tax prep fees for simple returns was specifically excluded as an updated administrative policy. Nonetheless many tax preparers and accounting firms still claim the fees.

T777
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-229-other-employment-expenses/commission-employees/accounting-legal-fees.html
Accounting and legal fees
You can deduct reasonable accounting fees you paid for help to prepare and file your income tax and benefit return. You can deduct legal fees you paid in the year to collect or establish a right to collect salary or wages.

You can also deduct legal fees you paid in the year to collect or establish a right to collect other amounts that must be reported in employment income even if they are not directly paid by your employer.

However, you must reduce your claim by any amount awarded to you for those fees or any reimbursement you received for your legal expenses. You do not have to meet the conditions of a commission employee to deduct legal fees.

Completing your tax return
Enter this amount on the Accounting and legal fees line (8862) of Form T777, Statement of Employment Expenses.

Enter on line 229, the allowable amount of your employment expenses from the total expenses line of Form T777.

Forms and publications
Form T777, Statement of Employment Expenses
IT99, Legal and Accounting Fees

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it99r5-consolid/archived-consolidated-legal-accounting-fees.html#P106_7581

Income Tax Returns
¶ 6. 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 tax returns relate. A taxpayer who is employed in connection with selling property or negotiating contracts and who is entitled to deduct expenses pursuant to paragraph 8(1)(f) (see the current version of IT-522, Vehicle, Travel and Sales Expenses of Employees), may deduct a reasonable amount paid during the year to comply with the requirement to file an income tax return.

¶ 7. Under paragraph 60(o), all taxpayers, including those persons who report income from sources other than business or property (such as salary or capital gains), may deduct fees or expenses incurred and paid for advice or assistance in preparing, instituting or prosecuting an objection or appeal in respect of

(a) an assessment of tax, interest or penalties under the Income Tax Act or a similar provincial law,

(b) a decision of the Canada Employment and Immigration Commission, the Canada Employment and Insurance Commission, or a board of referees or an umpire under the Unemployment Insurance Act or the Employment Insurance Act,

© an assessment of income tax, interest or penalties levied by a foreign government or political subdivision thereof, if the tax is eligible for a foreign tax credit, or

(d) an assessment or decision under the Canada Pension Plan or a similar provincial plan.

A taxpayer may deduct amounts expended in connection with legal and accounting fees incurred for advice and assistance in making representations after having been informed that the taxpayer’s income or tax for a taxation year is to be reviewed, whether or not a formal notice of objection or appeal is subsequently filed.

¶ 8. Any costs awarded or reimbursed to a taxpayer in respect of expenses deducted or deductible under paragraph 60(o) must be included in income by virtue of paragraph 56(1)(l) for the year in which the award was received. As indicated in ¶ 4 above, where other legal and accounting expenses were deducted under the general provisions of the law, any recovery of such expenses will reduce the expenses originally allowed.

@dominique_dabolczi
See also the header of chapter 2 of T4044
“This chapter describes the expenses you can deduct if you earn commission income. If you earn a salary, see Chapter 3 which begins on page 7.”

In your T777 section, you are quoting from sections referring to S8(1)(f) Salespersons commissions expenses.
"A taxpayer who is employed in connection with selling property or negotiating contracts and who is entitled to deduct expenses pursuant to paragraph 8(1)(f) "

Your quoted paragraph 6 etc is referring to Business and Property income (ITA S9 etc)

“Income Tax Returns
¶ 6. 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…”
Section 9 is not employment income.

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