Are Legal Fees Paid to Collect Severance Tax Deductible?

Leaving a job can be a painful experience if it’s not your idea.  Often legal challenges erupt. That can be costly. . .but can the CRA provide any relief when legal fees skyrocket?

The good news is, yes, that if you incur legal fees in order to collect money owed to you for severance, pension benefits, or a retiring allowance, indeed, you may claim those expenses as “Other Deductions” on the tax return. But there are a few catches:

• In fact, those expenses must not be reimbursed to the employee and, if they are, the amount collected must be included in income.

• Here’s another problem:  your claim for legal fees may be reduced if amounts received from the dispute are transferred into your RRSP. If unabsorbed by the severance income reported, these fees can be carried forward for seven years to offset other income.

Check with your DFA-Tax Services Specialist™ and keep good records in case of audit.

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