Did You Know
Penalties and interest may be tax deductible. If you own a business (either incorporated or a proprietorship) and incur penalties or interest for GST reassessments, provincial sales taxes, overweight truck fines, parking tickets, speeding tickets, or penalties for producing over quota and the penalties or interest were incurred to earn income, then the Supreme Court of Canada ruled they are tax deductible. The Court determined that all fines and penalties are deductible for tax if incurred in the course of earning income and are not specifically excluded from deduction in the Income Tax Act of Canada. However, penalties or interest levied under the Income Tax Act are specifically not deductible as are fines or penalties under the Criminal Code.
The interpretation of the Supreme Court ruling is complex. See a Chartered Professional Accountant to determine whether a penalty or interest was incurred to earn income and whether the amount is therefore deductible for tax.
Careful planning with a Chartered Professional Accountant is warranted. Contact Keith Anderson, BCom, CPA, CA-IT, CITP at (780) 447-5830 if you need advice.