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Are Tax Preparation Fees Deductible in Canada?

Marin Perez
Restaurant owners preparing their taxes

If you are self-employed or an employee who works from home, you can deduct your tax preparation expenses, including the cost of software.

Read on for more about how you can save on your tax preparation expenses at tax time.

Who can deduct tax preparation fees?

You can deduct your tax preparation expenses if you're self-employed, a sole proprietor, a freelancer, an employee who works from home, or a small business owner. You can also do this if you earn rental income.

Why are tax preparation fees deductible?

Even if all you do is visit your nearest storefront accounting firm and buy a software package, you can deduct whatever you spend on these. If you are an employee, enter the amount under Accounting and legal fees on your Form T777, Statement of Employment Expenses. If you are self-employed, enter the amount at Professional fees (including legal and accounting fees) on your Form T2125, Statement of Business or Professional Activities. 

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When can you deduct tax prep fees for real estate?

If you earn income by selling property or negotiating real estate contracts, you can deduct anything you spend on legal and accounting advice. You can also deduct expenses if you get help with your required record keeping for income tax returns.

You can make these deductions as long as the following conditions apply, according to paragraph 8(1)(f) of the Income Tax Act:

  • Your employment contract makes no allowance for expenses
  • You do all or most of your work away from your employer's place of business
  • All or part of your income is from commissions or similar amounts based on sales, or the number of contracts you negotiate
  • Your employer doesn't give you a travel allowance

How do I deduct tax preparation fees?

Report your tax preparation expenses and any other accounting and legal fees on Form T777, Statement of Employment Expenses if you are an employee. Use From T2125, Statement of Business or Professional Activities if you are self-employed.  

In case you find yourself in a legal dispute over your tax assessment, you can deduct your related expenses, minus any reimbursements you may have received.

Deducting tax preparation fees for an appeal

Under paragraph 60(o) of the Income Tax Act, you have the right to deduct "fees or expenses incurred in preparing, instituting or prosecuting an objection to, or appeal in relation to, (i) an assessment of tax, interest or penalties‚" or "(iii) an assessment of any income tax‚"

Florence Sauve of tax law firm Thorsteins sons, LLP notes that you can only make these deductions if your "voluntary disclosure" of information the CRA requests is accepted. Anything you spend on professional fees for preparing your initial voluntary disclosure is not deductible. 

Where do I find help with tax preparation?

If you have earned enough money to be legally required to pay taxes, congratulations! Look for a free tax preparation clinic - these are usually available in March or April. Alternatively, hire a talented accountant, or visit a tax preparation company.

Some people find tax preparation software is enough to meet their needs. When in doubt, check out the federal government's income tax portal.

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