Canada Tax Court Issues Decision Clarifying GST/HST Bad Debt Deduction Rules for Legal Service Providers

The Canadian Tax Court April 14 issued Decision No. 2026 TCC 69, clarifying the GST/HST bad debt deduction rules for legal service providers. The taxpayer, a former law firm, claimed deductions for HST on alleged bad debts arising from unpaid legal fees. The Minister of National Revenue denied the deductions, contending that the debts weren’t established as bad or written off in the taxpayer’s books of account. On appeal, the Tax Court dismissed the taxpayer’s appeal, finding that: 1) the taxpayer didn’t establish that the receivables qualified as bad debts because it didn’t demonstrate reasonable and debt-specific collection efforts; 2) ...