Are accounting or tax preparation fees deductible on my tax return?
Yes. No. I mean yes.
Let me explain.
If you are a business owner, accounting fees and tax preparation fees are deductible on the T2125 Statement of Business Activities under Line 8860, “Legal, Accounting, and other professional fees“. According to a CRA Interpretation Bulletin (IT-99R5):
1. Except where there is a specific provision in the Act dealing with legal or accounting fees…, legal and accounting fees are deductible only to the extent that they
(a) are incurred for the purpose of gaining or producing income from a business or property, and
(b) are not outlays of a capital nature
So, according to (a), as long as the accounting fees were for the purpose of producing income for a business, then absolutely, deduct away!
(Just so you don’t stay awake tonight asking yourself what (b) above means, it usually pertains to legal or accounting fees when purchasing something big like real estate or machinery. In this case the fees cannot be expensed, but must be added to the capital cost of the property and depreciated over time.)
Unfortunately, form T2125 is only one part of your tax return. CRA believes the rest of your tax return has absolutely nothing to do with producing income for a business. Therefore, in their eyes, only the accounting fees charged to prepare specifically form T2125 would be eligible for the deduction.
Welcome back to the real world. I try to visit whenever I can.
If my client has a business, I always claim 100% of the tax preparation/accounting fees I charge him. I enter it on the T2125. In other words, I always prepare the personal portions of a tax return for “free”. It’s that stupid T2125 that costs all the money.
If my client does not have a business, but has some investment or “property” income (like bank interest, or stocks) I claim the fees as a deduction on Schedule 4.
If my client has neither of the above, I do not claim any tax preparation or accounting fees.
What if I buy tax software and do it myself?
If you have a business, by all means put the cost of TurboTax, or whatever software you are using in Office Expenses on the T2125. It is a legitimate cost of doing business, and you won’t find any profitable businesses doing their taxes by hand these days.
If you don’t have a business, but have investment income, you could try deducting it on your Schedule 4 (Statement of Investment Income).
If you have neither of the above, you have a dream. And dreams are not deductible no matter where you put them.