Business -> Penalties and fines not deductible

Penalties and fines are not deductible business expenses.

Income Tax Act s. 67.6, 18(1)(t)

Fines and penalties imposed after March 22, 2004 by federal, provincial, or municipal governments in Canada or by a foreign country are not deductible.  According to Interpretation Bulletin IT-104R3, this includes "any fines or penalties imposed by a government, a government agency, regulatory authority, court or other tribunal, or any other person with a statutory authority to levy a fine or penalty."

The non-deductibility does not apply to penalties incurred pursuant to contracts, such as late performance penalties.

Interest expense charged on overdue amounts are not considered fines or penalties.  However, the Income Tax Act specifically disallows the deduction of penalty interest paid regarding late income tax, GST/HST, or Air Travellers Security Charge payments.  The non-deductibility of penalty interest re GST/HST and Air Travellers Security Charge payments applies to amounts paid in taxation years that begin on or after April 1, 2007.  IT-104R3 has not been updated to reflect this change.

Revised: October 05, 2009