Professional Fees

Definition

Professional fees include payments to lawyers, accountants, bookkeepers, consultants, IT specialists, and similar advisers. Whether a fee is deductible depends on the character of the underlying work. Fees that support current operations are current expenses; fees that create, acquire, or reorganize a capital asset are capital in nature and recovered (if at all) through CCA or at disposition.

Key rules

• Current-expense fees (s.18(1)(a)): routine bookkeeping, payroll, GST/HST returns, annual T2 preparation, employment law advice, contract review for day-to-day operations, and tax dispute representation are deductible when paid.
• Capital-nature fees (s.18(1)(b)): legal and accounting fees related to acquiring a business, issuing shares, amalgamating, reorganizing, or defending title to property are capital and not deducted as current expenses.
• Financing fees (s.20(1)(e)): costs of issuing shares, borrowing money, or incurring indebtedness are deductible on a 20% straight-line basis over five years, regardless of the life of the borrowing.
• Incorporation costs (post-2017): the old $3,000 rule under s.20(1)(b) still exempts the first $3,000 of incorporation costs as currently deductible. Amounts above $3,000 are added to Class 14.1 and amortized at 5% declining balance. The old Eligible Capital Property regime was replaced by Class 14.1 effective January 1, 2017.
• Objection and appeal fees (s.60(o)): fees to object or appeal income tax, CPP, EI, or UI determinations are deductible to individuals under s.60(o). Corporations deduct such fees under the general s.18(1)(a) test.
• Reasonableness (s.67): related-party or unusually large fees must be reasonable.

Example

Pacifico Ventures Inc. incurs the following 2026 professional fees: $4,200 to incorporate (legal), $11,000 for a share reorganization (legal), $2,600 annual T2 and year-end (accounting), and $1,800 for general bookkeeping advice.

The $1,200 Class 14.1 addition will amortize at 5% declining balance, with the first year subject to the half-year rule.

Common mistakes

• Deducting all legal fees on the income statement without identifying capital-nature work.
• Writing off the entire $11,000 reorganization fee rather than adding it to capital cost of the underlying shares.
• Missing the s.20(1)(e) 20% amortization for share-issuance or loan-arrangement fees.
• Treating post-2017 Class 14.1 additions as fully deductible. They amortize at 5% declining balance.
• Claiming fees paid in cash to an unrelated adviser without an invoice that names the service.

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