Legal Costs to Obtain Support Amounts Paragraph 17 of Interpretation Bulletin IT-99R5 (Consolidated), Legal and Accounting Fees, provides that legal costs incurred in establishing the right to spousal support amounts, such as the costs of obtaining a divorce, a support order for spousal support under the Divorce Act or a separation agreement, are not deductible as these costs are on account of capital or are personal or living expenses. This position is based on the decision of the Federal Court-Trial Division in the case of The Queen v. Burgess, [1981] CTC 258, 81 DTC 5192. The last sentence of paragraph 17 of the interpretation bulletin also provides that the legal costs of seeking to obtain an increase in spousal or child support, or to make child support non taxable under the Federal Child Support Guidelines (the "Guidelines"), are non-deductible. Following the decision in the case of Gallien v. The Queen, [2001] 2 CTC 2676, 2000 DTC 2514 (T.C.C.- Informal Procedure), the Canada Customs and Revenue Agency (CCRA) has reconsidered the above positions. As a result, we now consider legal costs incurred to obtain spousal support under the Divorce Act, or under the applicable provincial legislation in a separation agreement, to have been incurred to enforce a pre-existing right to support. Consequently, these costs are deductible pursuant to the comments in paragraph 18 of Interpretation Bulletin IT-99R5 (Consolidated). We also accept that legal costs of seeking to obtain an increase in support or to make child support non taxable under the guidelines are also deductible. This change in position will be effective for future assessments and reassessments and will not apply retroactively (unless a notice of objection was filed and is still outstanding, or can still be filed). Please click here to contact me so that I may provide you with the entire Canada Customs and Revenue Agency Interpretation Bulletin to provide to your tax professional. I can also help you to best structure you case to maximize the deductible portion of your legal fees but at the same time keeping those legal fees to the absolute minimum. Legal Fees, deductible or not, are best in your pocket, not spent on unnecessary legal proceedings.
|