Can You Deduct Legal Fees Paid for Another Taxpayer’s CRA Dispute? Kruivitsky v. The King

• Can You Deduct Legal Fees Paid for Another Taxpayer’s CRA Dispute? Kruivitsky v. The King
• Overview: What if I paid Legal Fees or Expenses Regarding Tax Assessment of Another Taxpayer?
• Background: What Happened Between Ms. Kruivitsky and Mr. Dombroski?
• Key Issues and Findings: When Are Legal Fees for a CRA Tax Dispute Deductible?
• Interpreting Paragraph 60(o) in Its Statutory Context
• Paragraph 60(o) Had to Be Read Together With Paragraph 56(1)(l)
• Earlier Decisions Did Not Establish a General “Proximity” Test
• Practical Implications: What Does Kruivitsky Mean for Taxpayers Who Pay Another Person’s Tax-Dispute Expenses?
• Takeaway: Who Is Really Entitled to the Paragraph 60(o) Deduction?
• Pro Tax Tips: Deducting Legal Fees and Expenses From a Tax Dispute
• Frequently Asked Questions:
• 1. Can I deduct legal fees I paid to challenge someone else’s CRA assessment?
• 2. What if I paid the legal fees for a family member’s tax appeal?
• 3. Can I deduct legal fees that I paid for my business partner’s tax assessment?
• 4. What if I am an executor or trustee and pay legal fees relating to the deceased taxpayer’s or estate’s assessment?
• 5. Does Kruivitsky mean that only the person named on the CRA assessment can ever deduct the expenses?
• 6. What if I paid only part of another taxpayer’s legal fees?
• 7. Are accounting fees for a tax dispute treated the same way as legal fees?
• 8. Can a corporation deduct legal fees relating to a shareholder’s personal tax assessment?
• 9. What happens if the taxpayer receives a court costs award but someone else paid the legal fees?
• 10. Can I deduct legal fees incurred before the CRA actually issues a reassessment?

Overview: What if I paid Legal Fees or Expenses Regarding Tax Assessment of Another Taxpayer?

Kruivitsky v. The King, 2026 TCC 141 [Kruivitsky] deals with whether a taxpayer can deduct legal fees that she paid for another person’s CRA dispute. Ms. Kruivitsky paid legal fees connected with Mr. Dombroski’s tax appeal and tried to deduct those fees under paragraph 60(o) of the Income Tax Act. The Tax Court denied the deduction. The Court held that paragraph 60(o) generally applies to expenses incurred in disputing the taxpayer’s own assessment, not another taxpayer’s assessment. The decision confirms that payment alone does not determine deductibility; the key question is whose tax liability was actually being challenged.

Background: What Happened Between Ms. Kruivitsky and Mr. Dombroski?

The appellant, Kathryn Kruivitsky, was a Chartered Accountant. By 2017, she was semi-retired and had largely stopped practising tax professionally, although she continued to help family members prepare their tax returns without charge. Ms. Kruivitsky’s niece was married to Brandon Dombroski, a paramedic. Mr. Dombroski and other paramedics had an ongoing dispute with their employer relating to automobile and cellphone expenses. Mr. Dombroski nevertheless claimed those employment expenses on his 2017 tax return, but the CRA assessed him and denied the deductions because he did not have a T2200.

Consequently, Ms. Kruivitsky assisted Mr. Dombroski in challenging the assessment. She represented him during the CRA tax objection process and later acted as his agent before the Tax Court of Canada. She provided that assistance voluntarily, received no compensation, and had no financial or other pecuniary interest in the outcome of his tax dispute. The Tax Court ultimately dismissed Mr. Dombroski’s appeal. Following that decision, Ms. Kruivitsky and Mr. Dombroski retained tax counsel to advise them on a possible appeal to the Federal Court of Appeal. An appeal was commenced, and Ms. Kruivitsky personally paid approximately $6,000 in legal fees and disbursements associated with that proceeding. The appeal was discontinued before it could be heard.

For her 2022 taxation year, Ms. Kruivitsky claimed a deduction of $6,211 for the legal fees and expenses she had paid in connection with Mr. Dombroski’s Federal Court of Appeal proceeding. The CRA reassessed her 2022 tax return on January 11, 2024 and denied the deduction. The Court upheld the CRA’s decision.

For family members, shareholders, trustees, executors, and others who may pay another person’s tax litigation expenses, the decision is especially notable, especially for those who already know that one may deduct legal fees or expenses under paragraph 60(o). Kruivitsky adds another layer to the applicability of this paragraph: even where you genuinely incur and pay substantial legal fees or expenses, the deduction may still be denied if the underlying tax assessment concerns another taxpayer, regardless of how close your relationship is with that person.

Key Issues and Findings: When Are Legal Fees for a CRA Tax Dispute Deductible?

Before going into the Court’s reasoning in Kruivitsky, it is helpful to first understand how paragraph 60(o) generally operates when a taxpayer incurs legal or professional fees in connection with their own tax dispute.

Paragraph 60(o) of the Income Tax Act permits a taxpayer to deduct qualifying legal, accounting, or other professional fees and expenses incurred in connection with certain tax disputes, including amounts paid for advice or assistance in preparing, instituting, or prosecuting an objection or appeal relating to an assessment of tax, interest, or penalties.

A common example is where the CRA reassesses a taxpayer’s income tax return, and the taxpayer retains a tax lawyer to prepare and file a notice of objection. If the statutory requirements in paragraph 60(o) are otherwise satisfied, qualifying fees and expenses incurred in challenging that reassessment may generally be deducted in computing the taxpayer’s income. The provision can also apply to qualifying expenses incurred in pursuing an appeal from the assessment.

Importantly, paragraph 60(o) is not limited to expenses connected with earning business or property income. A taxpayer may therefore be entitled to deduct qualifying legal or professional fees incurred in challenging the taxpayer’s own income tax assessment even where the underlying income is employment income or another source of income.

The important limitation highlighted by Kruivitsky, however, is that paragraph 60(o) does not simply follow the person who pays the invoice. The Tax Court had to determine here whether the provision also permits a deduction where one taxpayer voluntarily pays legal fees incurred in disputing another taxpayer’s tax assessment. In answering that question, the Court focused on whose tax liability was actually under challenge and concluded that payment alone was not enough to transfer the paragraph 60(o) deduction to a third-party payer.

Interpreting Paragraph 60(o) in Its Statutory Context

Starting with the wording of subparagraph 60(o)(i), the Court acknowledged that the text, read on its own, supported Ms. Kruivitsky’s position. The provision refers to amounts “paid by the taxpayer,” but it does not expressly state that the tax assessment being challenged must be that taxpayer’s own assessment. Accordingly, on a strictly literal reading, Ms. Kruivitsky appeared to satisfy the statutory requirements: she was a taxpayer, she paid the legal expenses, and those expenses related to an income tax assessment. The Court accepted that, if the analysis ended with the ordinary meaning of the words, her appeal would succeed.

However, emphasizing that statutory interpretation does not end with a literal reading, the Court next situated paragraph 60(o) within the broader scheme of the Income Tax Act. The Court observed that Parliament frequently specifies when a deduction or credit may be claimed in circumstances involving another taxpayer. Certain provisions expressly identify who may claim an amount, while others expressly allow amounts paid on behalf of another person to receive particular treatment. Therefore, the Court considered that Parliament had not expressly extended the deduction to third parties in the dispute.

Paragraph 60(o) Had to Be Read Together With Paragraph 56(1)(l)

The Court found stronger contextual support in the relationship between paragraph 60(o) and paragraph 56(1)(l). Paragraph 56(1)(l) generally requires a taxpayer to include in income certain legal costs awarded by a court in connection with a tax appeal where an amount relating to that tax assessment has been, or may be, deductible under paragraph 60(o). Read together, the two provisions reflect an intended symmetry between the taxpayer claiming the deduction and the taxpayer who may later receive a related costs award.

Allowing a third party to claim a paragraph 60(o) deduction merely because that person paid another taxpayer’s legal fees would break that symmetry. The person claiming the deduction could be different from the taxpayer whose assessment was under dispute and who could later receive a court-awarded amount for legal costs. The result could therefore be a mismatch: one taxpayer could deduct the legal fees, while another taxpayer, or potentially no taxpayer, would be required to include the court-awarded legal costs in income under paragraph 56(1)(l). The Court considered this mismatch an important contextual reason why paragraph 60(o) could not be interpreted as creating a general deduction for third parties who voluntarily pay legal fees incurred in another taxpayer’s tax dispute.

Viewing the two provisions as complementary, the Court illustrated the problem using Mr. Dombroski’s appeal. If Ms. Kruivitsky paid his legal fees and deducted them, but Mr. Dombroski later received a costs award, the deduction and the cost recovery could fall to different taxpayers. In some circumstances, no taxpayer might be required to include the costs award in income at all. The Court was concerned with this result because paragraphs 60(o) and 56(1)(l) are intended to operate as corresponding provisions: the deduction for legal expenses and the income inclusion for a subsequent costs award should generally attach to the same taxpayer.

Earlier Decisions Did Not Establish a General “Proximity” Test

The Court also considered two earlier decided cases: Sherman (Trustee of the Walbi Trust), et al. v MNR, [1976] CTC 2207 [Sherman] and, Flood v. The Queen, 2006 TCC 186 [Flood]. In these two decisions, deductions had been allowed even though the assessment technically related to another taxpayer.

In Sherman, a trust incurred expenses in disputing a corporation’s tax assessment, even though the trust had owned the corporation and had received its remaining assets following dissolution. The Tax Review Board effectively treated the trust as having succeeded to the corporation’s position and therefore was the only legal entity with an interest in the tax assessment. In Flood, the taxpayer was both a lawyer and the executor and trustee of his mother’s estate. Applying Sherman, the Court suggested that a person with a pecuniary or other interest that was “not too remote” from the assessment could potentially claim the deduction.

Nonetheless, the Court declined to interpret these cases as creating a broad rule based on the proximity of the payer’s relationship to the tax dispute. Instead, he viewed them narrowly as exceptional situations.

“For taxpayers, that means a substantial financial interest in another person’s tax dispute is no longer a strong basis, by itself, for claiming a paragraph 60(o) deduction.” – David Rotfleisch.

Practical Implications: What Does Kruivitsky Mean for Taxpayers Who Pay Another Person’s Tax-Dispute Expenses?

Kruivitsky creates a practical risk for anyone who pays, or is considering paying, legal fees incurred in another taxpayer’s tax dispute. The fact that you personally paid the invoice does not, by itself, mean that you can deduct the amount under paragraph 60(o). If the underlying tax assessment belongs to someone else, the deduction may be denied unless another legal basis applies.

This issue can arise in several common situations. A parent may pay legal fees for an adult child’s objection or appeal; one spouse may pay the other spouse’s tax-litigation expenses; a business partner may fund another partner’s dispute; or a corporation may pay legal fees relating to a shareholder’s or employee’s personal tax assessment. In each case, the payer should not assume that paragraph 60(o) applies merely because the payer ultimately bore the economic cost or has a close personal or financial relationship with the assessed taxpayer.

Executors, administrators, trustees, heirs, successors, and other legal representatives require particular attention. The Court suggested that earlier decisions such as Sherman and Flood may be defensible where the person claiming the deduction effectively stands in the shoes of the assessed taxpayer. However, it expressly left unresolved how close the legal relationship must be, or what rights and obligations must pass to the payer, before paragraph 60(o) can apply on that basis.

Taxpayers who have already claimed legal fees relating to another person’s tax dispute should also avoid assuming that Kruivitsky automatically requires an amended return. The appropriate response will depend on the taxpayer’s legal capacity, the nature of the underlying dispute, the purpose for which the expense was incurred, whether another statutory basis for deduction may apply, and whether the relevant taxation year remains open to reassessment.

In some cases, a deduction may potentially arise outside paragraph 60(o). For example, where legal fees are incurred for the purpose of earning income from a business or property, deductibility may instead be considered under the ordinary income-computation rules in section 9 and paragraph 18(1)(a). A corporation that pays legal fees connected with another person’s tax dispute, for example, may be able to establish an independent business purpose for the expenditure where resolving that dispute is necessary to protect its own business operations or complete an income-producing transaction.

But be cautious: such deductibility is fact-specific and not automatic. Paragraph 18(1)(b) generally prohibits the deduction of capital outlays or losses; personal expenses may lack the required income-earning purpose; and section 67 limits any otherwise deductible expense to an amount that is reasonable in the circumstances.

Before paying or claiming another taxpayer’s tax-dispute expenses, you should therefore identify whose assessment is actually in dispute, the legal capacity in which you are acting, why the expense is being incurred, and the statutory basis on which any deduction would be claimed.

Takeaway:Who Is Really Entitled to the Paragraph 60(o) Deduction?

The central lesson from Kruivitsky is that paragraph 60(o) is not a general deduction available to whoever happens to pay tax-dispute expenses. The statutory scheme must be read in light of whose tax assessment is at issue and how paragraph 60(o) interacts with paragraph 56(1)(l).

As the Court emphasized, paragraph 56(1)(l) supports a coherent relationship between the deduction of tax-dispute expenses and the inclusion of a subsequent costs award. The analysis should focus on the identity of the assessed taxpayer, the payer’s legal relationship to that taxpayer, the statutory provision relied upon, and whether an independent basis for deduction exists outside paragraph 60(o).

“Taxpayers should not analyze paragraph 60(o) in isolation. Kruivitsky shows that paragraph 56(1)(l) can be decisive because Parliament intended the deduction for tax-dispute expenses and the inclusion of any related costs award to operate together. If one taxpayer pays and deducts the legal fees while another taxpayer receives the costs award, that symmetry breaks down. Before claiming the deduction, taxpayers should consider not only who paid the fees, but also who would receive and report any court-awarded costs.” – David Rotfleisch.

Pro Tax Tips: Deducting Legal Fees and Expenses From a Tax Dispute

The fact that you paid legal or professional fees connected with a tax dispute does not necessarily mean that you are entitled to deduct those expenses. Paying the legal fees of a family member, friend, or other taxpayer will generally not entitle you to claim the deduction simply because you bore the cost.

You should also be cautious about relying solely on the literal wording of a provision in the Income Tax Act. In Kruivitsky, the wording of subparagraph 60(o)(i), read in isolation, appeared broad enough to cover expenses paid in relation to another taxpayer’s assessment. Tax provisions are interpreted as part of the overall statutory scheme, and an apparently favourable textual argument may not be sufficient.

Take special care when you pay another’s tax-litigation expenses. Before paying significant legal or accounting fees on behalf of a corporation, trust, estate, family member, or other taxpayer with the expectation of claiming a deduction, obtain advice from an experienced Canadian tax lawyer. Different considerations may apply where the payer is an executor, administrator, successor, or other legal representative, but Kruivitsky makes clear that a close personal relationship alone is not enough.

If you have incurred legal expenses in connection with a CRA objection, Tax Court appeal, or another taxpayer’s tax dispute, contact our experienced Canadian tax lawyers to determine whether the expenses are deductible and how they should be reported.

Frequently Asked Questions:

Can I deduct legal fees I paid to challenge someone else’s CRA assessment?

Generally, no. In Kruivitsky, the Tax Court held that subparagraph 60(o)(i) does not permit a taxpayer to deduct the costs of disputing another taxpayer’s tax assessment. The Court concluded that the provision was intended to allow taxpayers to deduct the expenses of litigating their own tax disputes.

The result may differ in limited circumstances involving executors, heirs, successors, or other legal representatives, but the Court did not definitively decide the scope of those exceptions.

What if I paid the legal fees for a family member’s tax appeal?

A family relationship by itself is not sufficient. Ms. Kruivitsky paid the legal expenses of her niece’s husband and had also assisted him throughout his CRA objection and Tax Court proceedings. Nevertheless, she had no pecuniary interest in the outcome and was not his successor or legal representative. The Tax Court therefore denied her deduction.

The important question is not simply whether you paid the expense or whether you were closely connected to the taxpayer. The identity of the taxpayer whose assessment is actually being challenged is central to the analysis.

Can I deduct legal fees that I paid for my business partner’s tax assessment?

Generally, not under paragraph 60(o) of the Income Tax Act. Merely paying the legal fees associated with another taxpayer’s tax assessment does not ordinarily entitle the payer to the deduction.

However, depending on the circumstances, the expense may potentially be deductible under the ordinary rules for computing business income. For example, suppose you and your business partner jointly operate a business and, under your partnership agreement, you are required to indemnify your partner for legal expenses arising from tax proceedings connected with the partnership’s business activities. If you pay those fees to satisfy that contractual obligation and to protect the continuing operation of your own income-earning business, there may be an argument that the expense was incurred for a genuine business purpose.

By contrast, simply paying your business partner’s personal tax litigation expenses because of your business relationship would generally not be enough. The key question is whether the expense was incurred for the purpose of earning income from, or protecting, the payer’s own business, rather than merely assisting another taxpayer with their tax dispute.

What if I am an executor or trustee and pay legal fees relating to the deceased taxpayer’s or estate’s assessment?

The answer may be different from the result in Kruivitsky. The Tax Court noted that earlier cases such as Sherman and Flood involved persons who were effectively successors, executors, trustees, or legal representatives of the taxpayer whose assessment was disputed.

The Court did not conclusively determine the scope of paragraph 60(o) in those circumstances. Executors and trustees should therefore obtain tax advice before claiming legal expenses personally or through the estate or trust.

Does Kruivitsky mean that only the person named on the CRA assessment can ever deduct the expenses?

Not necessarily. The Court left open the possibility that the statutory definitions of “taxpayer” and “person” may accommodate certain heirs, executors, administrators, successors, or other legal representatives.

What Kruivitsky does establish is that a taxpayer cannot obtain a paragraph 60(o) deduction merely because they voluntarily paid another person’s tax-litigation expenses.

What if I paid only part of another taxpayer’s legal fees?

Paying only part of another taxpayer’s legal fees does not generally change the result under paragraph 60(o). The central question remains whose assessment was being challenged. Under Kruivitsky, a taxpayer does not ordinarily become entitled to a deduction merely by contributing toward another person’s tax-dispute expenses.

Are accounting fees for a tax dispute treated the same way as legal fees?

Paragraph 60(o) can apply to qualifying “fees or expenses,” not only lawyers’ fees. Depending on the circumstances, accounting or other professional fees incurred in connection with preparing or pursuing a tax objection or appeal may also fall within the provision.

The same issue identified in Kruivitsky remains relevant: voluntarily paying professional fees relating to another taxpayer’s assessment does not generally allow the payer to claim the deduction.

Can a corporation deduct legal fees relating to a shareholder’s personal tax assessment?

Not merely because the corporation paid the fees. If the assessment relates personally to the shareholder, Kruivitsky suggests that paragraph 60(o) would not ordinarily permit the corporation to claim the deduction simply because it bore the cost.

A separate issue may arise if the corporation can establish that the expenditure was incurred for a genuine income-earning business purpose. The deductibility analysis would then depend on the ordinary rules governing business expenses and the specific facts.

What happens if the taxpayer receives a court costs award but someone else paid the legal fees?

This situation was specifically discussed in Kruivitsky. If the assessed taxpayer did not pay any deductible expenses under paragraph 60(o), a costs award received by that taxpayer may not necessarily be included in income under paragraph 56(1)(l).

The Court relied on this potential mismatch as one reason for rejecting a broad interpretation that would allow one taxpayer to deduct another taxpayer’s legal fees.

Can I deduct legal fees incurred before the CRA actually issues a reassessment?

Potentially, yes. CRA’s current guidance under Line 23200 – Other deductions, in the “Legal fees” section, states that taxpayers may claim legal fees, including related accounting fees, paid for advice or assistance in responding to the CRA when the CRA reviews their income, deductions, or credits for a taxation year. CRA’s archived Interpretation Bulletin IT-99R5 is consistent with this position. It provides further administrative guidance indicating that paragraph 60(o) may apply to fees incurred at the audit or review stage, before a formal reassessment is issued, where the taxpayer has been informed that his or her tax position is under review. The fees relate to advice or representations made to the CRA.

This means that a taxpayer does not necessarily need to wait until the CRA issues a notice of reassessment or until a formal notice of objection is filed. Qualifying fees may be deductible even where the taxpayer successfully resolves the matter during the audit and no reassessment is ultimately issued.

However, the fees must relate to the review or potential assessment. General tax planning, routine compliance work, or advice unrelated to a CRA review would not necessarily qualify under paragraph 60(o). The nature and timing of the professional services should therefore be considered carefully when determining whether the deduction is available.

DISCLAIMER: This article provides broad information. It is only accurate as of the posting date. It has not been updated and may be out-of-date. It does not give legal advice and should not be relied on as tax advice. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.