You paid a relative’s legal fees for their tax dispute, but can you claim the deduction?

According to the Tax Court of Canada’s recent decision in Kruivitsky v. The King, 2026 TCC 141 [Kruivitsky], the answer was no. Here is what the ruling could mean for those that fund someone else’s tax fight.

The facts: What happened in Kruivitsky?

The appellant, a chartered accountant, paid $6,211 in legal fees to support a tax appeal pursued by her niece’s husband. The appellant had no financial stake in the outcome of the dispute. The appeal was ultimately discontinued.

The appellant subsequently claimed the legal fees as a deduction under subparagraph 60(o)(i) of the ITA. The Canada Revenue Agency denied the deduction, and she appealed to the Tax Court of Canada.

Subparagraph 60(o)(i) – The deduction for tax dispute expenses

Subparagraph 60(o)(i) permits the deduction of amounts paid by a taxpayer for fees or expenses incurred in preparing, instituting, or prosecuting an objection or appeal in relation to an assessment of tax, interest, or penalties under the ITA or a similar provincial statute. On its face, the provision does not expressly state that the assessment must be the taxpayer’s own assessment. In fact, the Tax Court of Canada (the “Court”) noted that, under a plain reading of the provision, the appeal should succeed.[1]

Applying the modern approach to statutory interpretation, the Court examined the text, context, and purpose of the provision. The Court cited the Supreme Court of Canada’s observation that seemingly clear statutory language may reveal ambiguities when read in its broader legislative context.[2]

The Court placed particular emphasis on the relationship between subparagraph 60(o)(i) and paragraph 56(1)(l). Paragraph 56(1)(l) generally requires a taxpayer to include in income legal costs awarded in connection with an appeal relating to an assessment described in paragraph 60(o). The Court reasoned that permitting one taxpayer to deduct dispute-related expenses while a different taxpayer received and included a related costs award in income would create a mismatch that Parliament could not have intended.

The legislative history of the provisions also informed the Court’s analysis. The Court found that Parliament enacted predecessor provisions to paragraphs 60(o) and 56(1)(l) as a coordinated scheme allowing taxpayers to deduct the costs of pursuing their own tax disputes while including related court-awarded costs in income. The Court found that there was never any intent to allow taxpayers to deduct the cost of disputing the assessments of other taxpayers.[3]

Ultimately, the Court held while the wording of paragraph 60(o) may initially appear broad enough to permit a deduction by anyone who pays the expense, the provision must be interpreted in light of its broader statutory context. The Court noted that where Parliament intends to confer a deduction on someone other than the affected taxpayer, it generally does so expressly. The appeal was dismissed.

Key takeaways

  • Paragraph 60(o)(i) is generally directed at the taxpayer’s own dispute. The Court confirmed that paragraph 60(o) is intended to apply to taxpayers who incur expenses in disputing their own assessments. Funding another taxpayer’s objection or appeal does not generally entitle the payer to the deduction.
  • A favourable plain reading of the provision may not be enough. Although paragraph 60(o), read in isolation, appeared to support the appellant’s position, the Court reached a different conclusion after considering context and purpose.
  • Practical implications for family-funded disputes. Many tax disputes are supported financially by spouses, parents, children, or other family members. This case suggests that those individuals should not expect a tax deduction simply because they paid the legal fees. Taxpayers should carefully consider who incurs and pays dispute-related expenses.

Could a different set of facts have changed the outcome?

As Kruivitsky primarily concerns statutory interpretation, it is notable that the Court did not reference the Federal Court of Appeal’s recent decision in Hunt v Canada, 2026 FCA 188 [Hunt]. In Hunt, the Court described text as the “anchor of the interpretive exercise,” while confirming that statutory provisions must be read in their full context and in light of their purpose. That tension is evident in Kruivitsky. Although the Court accepted that a plain reading of paragraph 60(o) appeared to favour the taxpayer, it ultimately concluded that the provision’s context, legislative history, and purpose supported a narrower interpretation.

The decision raises the question of whether a different outcome may have been reached if the appellant had a direct economic interest in the appeal. The Court emphasized that she acted as a volunteer, motivated by familial ties and without any pecuniary interest in the underlying dispute. The decision leaves open the question of where the line should be drawn. For example: would the result have differed if the taxpayer paying the expenses stood to benefit economically from a successful appeal, such as a shareholder, beneficiary, creditor, or business partner?

Tax disputes and the deductibility of related expenses often involve nuanced statutory interpretation and fact-specific considerations. If you have questions about the implications of Kruivitsky or require assistance with these matters, please contact a lawyer from our Corporate Tax Group.

[1]     Kruivitsky at para 27.

[2]     Kruivitsky at para 17, citing Canada Trustco Mortgage Co v R, 2005 SCC 54 at para 47.

[3]     Kruivitsky at para 63.