Deducting Legal Expenses & Types of Expenses Allowed as Tax Deductions.

Deducting Legal Expenses & Types of Expenses Allowed as Tax Deductions.

Expenses incurred due to the legal costs of running a profitable business that yields an available income is usually listed as a tax-deductible expense. It's only when the legal fees are private, domestic, or capital in nature that exceptions are made: or when the expenses have already been deducted under another aspect of the taxable income law, or if it was incurred in earning exempt non-assessable incomes and otherwise.

With this in mind, for individuals that had to spend on legal matters involving their business, those expenses can only qualify to be deducted from their taxable income only if those expenses were made to procure accessible income for their business; for example,, a real estate property for their business. But if the reason for the legal expenses were personal, then it would not be added to their list of deductibles.

Legal Tax Deductions

Below are some types of legal expenses that can qualify to be added to the list of deductibles, although not under the general category, but under a different category of their own, according to special provisions made in the tax law.

  1. Professional consultation on tax issues, correct wrong tax assessment, income tax return preparation.

  2. Specific discharge of mortgage expenses

  3. The cost of preparing legal documents

  4. Specific loan acquisition expenses.

Other legal deductible expenses include:

  1. Valuation expenses

Legal fees incurred through valuation to determine whether or not to buy a business, does not qualify as a tax deduction but are classified under capital cost. However, if the valuation expenses were used to apply for a loan to fund a business, then such expenses could immediately be claimed as loan costs if they do not exceed $100, or the span of five years, or the due date of the loan, whichever comes first. 

  1. Lease for business

Any costs incurred in getting a lease could be deducted from a taxpayer's taxable income to acquire more available income if the property was obtained. The payments for the lease would, on a norm, be categorized under the general list of deductibles and are subject to special reimbursement rules. 

  1. Penalties or fines

Any expenses incurred by way of fines or penalties resulting from breaking the law cannot be categorized as a deduction. This applies to both local and foreign laws. But suppose such penalties were imposed by administrative directives, such as fines for disregarding the installments of GST or an additional charge on interests (which is applied to outstanding tax liabilities by the ATQ). In that case, they can be categorized under tax deductions. While other penalties or fines may be expressly excluded, expenses incurred from defending them could be listed as a deductible.

  1. Fees incurred for adjusting the terms of a contract or employment and settling any disagreements from it, especially when the contract is still ongoing.

  2. Costs for defending an unfair retrenchment by former bosses

  3. The legal cost of clearing up accusations of defamation against the shareholders of a company

  4. Costs incurred by the factual resolution of disputes through arbitration

  5. Legal fees of intercepting embezzled business funds

  6. Legal cost for objecting to certain developments in the community that might have adverse effects on an individual's business

  7. Costs incurred by tenant eviction due to outstanding rent payment

  8. Costs of reimbursing the wage of an employee due to bounced cheques

  9. Costs of attending to the compensation claims of employees

  10. Legal costs of defending the unlawful use of copyrighted materials

Expenses that do not qualify as legal tax deductions.

  1. Costs incurred in deciding on a contract with a new partner/boss.

  2. Legal costs of defending racial defamation or sexual harassment charges in the work environment.

  3. Costs of tenant eviction whose rent period has come to an end.

  4. Costs incurred in opposing a government application to use the personal property for public infrastructural purposes or opposing the amount of remuneration offered.  

  5. Costs incurred from resolving disagreements arising from redundancy payments and increasing efforts. 



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