Canadian Opposition Attacks Tax Deductible Fines

by Leroy Baker, Tax-News.com, New York

29 April 2003

The Canadian government has come under attack recently for allowing a tax loophole to remain open which lets firms deduct the costs of legal fines and penalties as an expense on their tax returns.

Whilst it is unclear just how widespread this practice is throughout Canada, the controversy arose from a 1999 decision by the Supreme Court to allow a British Columbian egg producer to deduct a fine imposed for over-production as a business expense.

The Canadian Customs and Revenue Agency sought to clarify the issue in a memo published last August, which stipulated that the income tax code does not distinguish between a levy and a fine or penalty, and it is not acceptable to make exceptions to the law purely on the basis of public policy.

Leading calls to close off this loophole is the Labour opposition party who have labelled the existence of the tax break as "absurd". Similar sentiments have been expressed by the unions, most notably the United Steelworkers, who have dubbed the law as it stands as "outrageous", according to reports.

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