Professional Fees

Definition

The purpose of the underlying work determines how legal, accounting and consulting fees are treated. Routine operating advice and bookkeeping may be current expenses; fees to acquire a capital asset normally form part of its cost. The payer must also be the person entitled to the deduction. CRA professional-fee guidance

Key rules

Routine bookkeeping, payroll support, return preparation and operating-contract advice are generally deductible when incurred under the applicable accounting method, subject to business purpose and reasonableness. Payment date alone does not control an accrual-basis corporation's deduction.

Certain qualifying share-issuance, borrowing and debt-restructuring costs are deducted under section 20(1)(e), generally at 20% per full year, prorated for a shorter taxation year and capped at the unclaimed balance. Qualifying early debt settlement can permit the remaining deduction; excluded amounts and refinancing transactions require separate analysis.

Section 20(1)(b) allows up to $3,000 of eligible incorporation expenses, reduced by amounts another taxpayer deducted for incorporating the same corporation. The post-2016 rules generally place eligible excess incorporation costs in Class 14.1. Its ordinary rate is 5% declining balance, but first-year treatment depends on the rules applicable to the addition. Do not automatically assume the half-year rule or full expensing. Current section 20, CRA Class 14.1 guidance

Tax objection or appeal fees can qualify under their specific rules, with reimbursements accounted for. Personal legal work, capital acquisitions and current business representation must be separated on the invoice.

Example

A corporation incurs $4,200 eligible incorporation fees, $11,000 for a share reorganization, $2,600 annual accounting and T2 preparation fees, and $1,800 current bookkeeping advice. Assume no other taxpayer claimed any incorporation expense and no recoverable tax is included.

• Incorporation: $3,000 current deduction and $1,200 eligible Class 14.1 addition.
• Accounting and bookkeeping: $4,400 current expenses under these assumptions.
• Reorganization: allocate the $11,000 by the actual work and beneficiary. Some costs may fall under a specific financing provision; other costs can be capital or belong to a shareholder. It is not automatically all added to the ACB of shares held by someone else.

The supported current deductions illustrated total $7,400 before any eligible reorganization deduction or CCA. Request an invoice that distinguishes incorporation, share issuance, asset acquisition, shareholder advice and ordinary operations.

Related concepts

• Business Expense Principle (ITA 18)
• Repairs vs. Capital Expenditures
• Insurance Expense