Are income tax preparation and legal fees tax-deductible?


What is the truth regarding the deductibility of income tax preparation and legal fees?  Many taxpayers and even some accountants have perpetuated this inaccuracy to take advantage of the situation,  perhaps to alleviate the client’s tax pains or enhance the attractiveness of their services. 

What is not deductible: 

Regular taxpayers:

  • Purchase of tax software
  • Personal tax preparation fees
  • Legal fees for any other personal reason.

What is tax-deductible: 

Regular taxpayers:

  • Legal and accountant fees for advice or assistance in preparing for objections or appeals.
  • Legal and accountant fees for advice or assistance in making representations after being informed that the taxpayer is to be reviewed or receiving an assessment of tax, interest or penalties under the Income Tax Act .
  • Fees paid during the year to comply with requirements to file an income tax return (ex.: Vehicle, Travel and Sales Expenses for Employees Selling Property or Negotiating Contracts).
  • Legal fees incurred to establish a right or collect a support payment or salary (if successful in court, unless it is for a pension benefit or a retiring allowance).
  • Legal costs incurred to enforce or defend pre-existing rights to interim or permanent child support amounts are deductible (not spousal support).

Business or property income taxpayers:  

  • Reasonable fees incurred for advice and assistance in preparing and filing tax returns.
  • Most legal fees arising in the ordinary course of business.
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