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Supreme Court of Canada Says Fines are Deductible
Generally under the Income Tax Act amounts expended for the purpose of gaining or producing income from a business or property, or for the purpose of collecting employment income, are deductible in arriving at taxable income.
In the 65302 British Columbia Ltd. decision last November, the Supreme Court of Canada determined that the Income Tax Act does not distinguish among levies, fines and penalties, and stated that if an expense is incurred for the purpose of gaining or producing business income it is deductible. In that particular case, the tax payable was allowed to deduct $270,000 in fines imposed against it by the Egg Marketing Board for exceeding its allotted quota in the production of eggs.
The Supreme Court stated specifically that it was irrelevant whether or not the fine was avoidable, and that it is not against public policy to allow the deduction of fines for tax purposes, so long as they were incurred for the purpose of gaining or producing income.
It would therefore seem from this ruling that any fines or penalties incurred in connection with a business activity, whether avoidable or not, are deductible. Moreover, any legal expenses incurred with respect to such fines and penalties would also be deductible.