Can I deduct legal fees from an employment or severance dispute?

Arsen Accounting Services · Question 122 · Sources checked October 29, 2026

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Some employment-related legal fees may be deductible, but the purpose of the work matters. Fees to establish a right to wages can follow different rules from fees concerning a retiring allowance, pension, or another part of a settlement.

Ask for an itemized legal bill

CRA permits certain fees to collect or establish a right to a retiring allowance or pension, subject to limits linked to qualifying income and transfers. Unused qualifying fees in that category may be carried forward for up to seven years. Other employment-fee claims should be reviewed under the applicable employment rules.

Do not assume every fee connected with losing a job has the same treatment. Mixed legal work may need to be divided between eligible and ineligible purposes, and reimbursements must be considered.

Official guidance: [1], [2].

Match the fees to the outcome

Imagine one settlement covers unpaid wages, a retiring allowance, and a separate non-employment dispute. An invoice saying only “legal services” makes the tax analysis harder. A description of the work and its allocation provides a much stronger basis for the claim.

Gather these records

• Detailed invoices identifying the issues addressed.
• The settlement or judgment and payment breakdown.
• Amounts reimbursed by the employer or another party.
• Tax slips and any direct RRSP-transfer information.

Ask your preparer which return line applies, whether a limit restricts the current deduction, and whether a carryforward should be recorded. Keep a running balance of any unused eligible fees. Do not net all legal costs against the cheque and report only what remains; the income and deduction often need separate reporting.