Without legal representation, Canadian taxpayers will encounter several challenges when attempting to formulate a tax-settlement offer, which must strike a balance between containing a degree of compromise and proposing a principled result. This is especially true in all-or-nothing cases, which are common in tax-related disputes. Tax settlements may be more feasible when the disputed reassessment involves multiple issues: the offer can concede some issues to the CRA while allowing the taxpayer to succeed on other matters. Still, the restrictions on tax settlements likely cause fewer cases to be settled than would be efficient. Perhaps the Tax Court of Canada may address this situation by reconsidering its procedural rules in light of this case law.

Canada's tax rules allow a taxpayer to deduct the legal fees that the taxpayer incurred for representation during a tax appeal. Subparagraph 60(o)(i) of Canada's Income Tax Act permits a taxpayer to deduct "amounts paid by the taxpayer in the year in respect of fees or expenses incurred in preparing, instituting or prosecuting an objection to, or an appeal in relation to, an assessment of tax, interest or penalties under [the Income Tax Act] or an Act of a province that imposes a tax similar to the tax imposed under [the Income Tax Act]."

This tax rule covers the legal fees relating to (1) the preparation and filing of a notice of objection to the CRA's Appeals Division, (2) legal representation during the objection process, (3) the preparation and filing of a notice of appeal to the Tax Court of Canada, (4) legal representation during the tax-litigation process, and (5) legal representation during post-Tax Court appeals (e.g., a tax appeal to Canada's Federal Court of Appeal or to the Supreme Court of Canada). The deduction under subparagraph 60(o)(i) also applies to accounting expenses that a taxpayer incurred in relation to a tax objection or tax appeal.

David J Rotfleisch, CPA, JD is the founding tax lawyer of Taxpage.com and Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law corporate law firm and is a Certified Specialist in Taxation Law who has completed the CICA in-depth tax planning course. He appears regularly in print, radio and TV and blogs extensively.  

With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, cryptocurrency traders, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax audit representation and tax litigation. Visit www.Taxpage.com and email David at david@taxpage.com.

Read the original article in full on Mondaq. Title image: iStock. Author photo courtesy Rotfleisch & Samulovitch P.C.

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