On July 10, 2015, CRA released Income Tax Folio S4-F2-C1: Deductibility of Fines and Penalties replacing Interpretation Bulletin IT-104R3. Among other matters, the Folio addresses Section 67.6 in detail, a provision which was only pending when the Interpretation Bulletin was last updated. That provision denies a deduction for any fine or penalty imposed under federal, provincial, municipal or foreign law, except for prescribed penalties. At present, the only prescribed penalty is a 1⁄2 of 1% per month penalty on duties, penalties and interest imposed under Paragraph 110.1(1)(a) of the Excise Tax Act.

CRA noted that “fine” and “penalty” are not defined terms, and the legislation imposing the charge would be expected to identify it as a fine or a penalty. CRA noted that Section 67.6 does not restrict deductions for penalties under private contracts, or interest charges on penalties, although other provisions could restrict their deductibility (such as Paragraph 18(1)(t) which prevents deduction of interest imposed under the Income Tax Act).

For further information see VTN Monthly Tax Update Seminar, Issue No. 409