Can I write Off Tax Preparation Fees?

By Randall Orser | Personal Income Tax

Taxes On Calculator Shows HMRC Return Due TNThis is a question I get a lot from my clients. Most people believe that since someone else is preparing their taxes, that the fee can be used as a deduction, as accounting fees do show up on the tax return. However, this is not necessarily the case.

Employees

If you are employed, you cannot deduct accounting fees. There are exceptions (isn’t there always). If you are employed on a commission basis or have employment expenses then you can write-off accounting fees for the preparation of the numbers for the return as well as preparation of the return. Basically, you can deduct a reasonable amount paid during the year to comply with the requirement to file a tax return.

As an employee, you may also deduct accounting fees relating to:

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,

c)     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.

You may deduct amounts expended in connection with accounting fees (legal fees too) 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.

Business or Property Owners

For the small business person or property owner, accounting fees are allowable deductions where they are incurred in connection with normal activities, transactions or contracts incidental or necessary to the earning of income from a business. A deduction may therefore be taken for accounting expenses in connection with a broad range of routine business functions, such as

a)     Preparing contracts in relation to the sale of inventory,

b)    Obtaining security for and collecting trade debts owing,

c)     Preparing financial records and minutes of shareholders’ and directors’ meetings,

d)    Making annual corporate filings,

e)     Routine or regular audits of financial statements,

f)     Conducting appeals in respect of, for example, sales tax including Goods and Services Tax/Harmonized Sales Tax, excise, municipal, or property taxes, and

g)     Watching legislation (including customs and other regulations) affecting the business operations of the taxpayer.

In addition to the above, you can deduct accounting fees (and legal) incurred in connection with

h)    (a) Issuing bonds, debentures or mortgages,

i)      (b) Borrowing money for certain business or property purposes,

j)      (c) Incurring indebtedness that is an amount payable for certain business or property purposes, and

k)    (d) Rescheduling or restructuring a debt obligation

For the business and/or property owner, generally any accounting fees incurred to facilitate in the bookkeeping, preparation of government remittances and tax returns, filing information with the government, and other accounting related activities of the business are deductible for income tax purposes.

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