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-   -   Carrying Charges And Interest Expense (http://www.ottawadivorce.com/forum/f5/carrying-charges-interest-expense-21294/)

Hova 08-29-2017 01:32 PM

Carrying Charges And Interest Expense
 
Hi All - I did a search but didn't see much on this topic. My ex's lawyer has sent over a DivorceMate calculation that includes an amount for "Carrying Charges And Interest Expense" in the amount of $3,286.00. The net result of this is that it decreases her income by that amount for the purpose of recalculating child support (i.e 75K on line 150 is now $71,714) .

Now on the CRA website it states: Line 221 Carrying Charges and Expenses

Legal fees you incurred relating to support payments that your current or former spouse or common-law partner, or the natural parent of your child, will have to pay to you. You can also deduct your expenses in the following situations:
  • You collected late support payments.
  • You established the amount of support payments from your current or former spouse or common-law partner.
  • You established the amount of support payments from the natural parent of your child (who is not your current or former spouse or common-law partner) where the support is payable under the terms of an order.
  • You sought to obtain an increase in support payments.

So, none of the above is remotely true. It takes her lawyer probably 15 minutes to input the data to recalc in DivorceMate but this seems like she's telling the CRA it took 8-9 hours of legal time to recalc CS. I'm assuming she will try to do this every year to purposely lower her income and recoup the tax benefit of this as well.

Any thoughts? Is this really legit? Should I report this to the CRA?

Desperate_Dad 09-04-2017 10:18 PM

First of all, you are assuming that this deduction is for lawyers fees. More often than not, this deduction is for interest charges incurred when borrowing to purchase investments. That's probably what this is.

Now I'm no fan of divorcemate. This program is terrible and is the cause of much litigation. But here is what Divorcemate says.

Carrying charges and interest expenses
Input the party's annual tax deductible amounts of carrying costs and interest expenses (T1, Line 221). Note that the software will automatically deduct these carrying charges and interest expenses in the determination of the party's Guidelines Income and child and/or spousal support (CSG, Sch. III, s.8).
If a party incurs expenses in order to earn income from investments, a tax deduction may be taken.
Examples of tax deductible carrying charges and interest expenses paid include (ie. not exhaustive):
 fees to manage or take care of investments (other than RRSP or RRIF administration fees);
 safety deposit box charges;
 some accounting and investment counsel fees;
 interest on money borrowed to earn investment income;
 fees for certain investment advice or for recording investment income;
 policy loan interest (T2210);
 repayment of income tax refund interest from reassessment;
 carrying charges for Canadian and foreign investment income;
The following are not tax deductible:
 interest paid on money borrowed for RRSP, RESP, registered disability savings plan, or Tax-Free Savings Account;
 interest part of student loan repayments;
 subscription fees paid for financial newspapers, magazines or newsletters;
 brokerage fees or commissions paid when securities bought or sold.

I do not agree that these expenses should be deducted.

In my view, here is what you should do assuming these are interest charges on investment expenses.

1. Exclude the investment income that is included in Line 150. Personally you shouldn't use Line 150 at all and just add the income applicable for support purposes.

2. Once that is done, carrying charges should not be included as a deduction.

If this does happen to be lawyers fees they are trying to deduct, I would not allow it.

Hova 09-05-2017 01:20 PM

Thanks for the follow-up. This is, in fact, her legal expenses. In her tax filing, it has the name of her Laywers business noted in the line for the "Carrying Charges". She is essentially saying her Lawyer expended 8-9 hours solely on Child Support recalculation. Mine did it in 15 mins. Ex prefers to use lawyers for everything so mysupportcalculator is not an option with her.

Thoughts?


Quote:

Originally Posted by Desperate_Dad (Post 223232)
First of all, you are assuming that this deduction is for lawyers fees. More often than not, this deduction is for interest charges incurred when borrowing to purchase investments. That's probably what this is.

Now I'm no fan of divorcemate. This program is terrible and is the cause of much litigation. But here is what Divorcemate says.

Carrying charges and interest expenses
Input the party's annual tax deductible amounts of carrying costs and interest expenses (T1, Line 221). Note that the software will automatically deduct these carrying charges and interest expenses in the determination of the party's Guidelines Income and child and/or spousal support (CSG, Sch. III, s.8).
If a party incurs expenses in order to earn income from investments, a tax deduction may be taken.
Examples of tax deductible carrying charges and interest expenses paid include (ie. not exhaustive):
 fees to manage or take care of investments (other than RRSP or RRIF administration fees);
 safety deposit box charges;
 some accounting and investment counsel fees;
 interest on money borrowed to earn investment income;
 fees for certain investment advice or for recording investment income;
 policy loan interest (T2210);
 repayment of income tax refund interest from reassessment;
 carrying charges for Canadian and foreign investment income;
The following are not tax deductible:
 interest paid on money borrowed for RRSP, RESP, registered disability savings plan, or Tax-Free Savings Account;
 interest part of student loan repayments;
 subscription fees paid for financial newspapers, magazines or newsletters;
 brokerage fees or commissions paid when securities bought or sold.

I do not agree that these expenses should be deducted.

In my view, here is what you should do assuming these are interest charges on investment expenses.

1. Exclude the investment income that is included in Line 150. Personally you shouldn't use Line 150 at all and just add the income applicable for support purposes.

2. Once that is done, carrying charges should not be included as a deduction.

If this does happen to be lawyers fees they are trying to deduct, I would not allow it.


Beachnana 09-05-2017 02:55 PM

It's got nothing to do with you how
Much she claims in legal fees.

She can claim her legal fees if she receives CS and the legal fees were for
her lawyer to do the work to secure CS

Now usually CRA ask for some proof if it's a large amount so she would have to send a detailed proof of the work which her lawyer would have to provide.

My daughter claimed $7k and CRA asked for the
Actual agreement and the invoices as proof and then they allowed the expense
It does not reduce the persons income it's a reduction in tax payable. Asked on your income

Beachnana 09-05-2017 02:57 PM

It's got nothing to do with you how
Much she claims in legal fees.

She can claim her legal fees if she receives CS and the legal fees were for
her lawyer to do the work to secure CS

Now usually CRA ask for some proof if it's a large amount so she would have to send a detailed proof of the work which her lawyer would have to provide.

My daughter claimed $7k and CRA asked for the
Actual agreement and the invoices as proof and then they allowed the expense
It does not reduce the persons income it's a reduction in tax payable on your income

Hova 09-06-2017 02:10 PM

Agreed, the CRA portion has absolutely nothing to do with me.

What the issue at hand here is, is that her lawyer has inputted the Carrying Charges and Interest for her legal fees into DivorceMate. It has absolutely deducted the amount from her income to be used for the overall calculation of Child Support. This is the question at hand. Is this correct?

So for example let's say we make 50K each. She has $3k of Carrying Charges inputted. My income is now 50K and hers is now 47k which they are saying should be used as the baseline for CS calculation, not $50K each.

Quote:

Originally Posted by Beachnana (Post 223244)
It's got nothing to do with you how
Much she claims in legal fees.

She can claim her legal fees if she receives CS and the legal fees were for
her lawyer to do the work to secure CS

Now usually CRA ask for some proof if it's a large amount so she would have to send a detailed proof of the work which her lawyer would have to provide.

My daughter claimed $7k and CRA asked for the
Actual agreement and the invoices as proof and then they allowed the expense
It does not reduce the persons income it's a reduction in tax payable on your income


Beachnana 09-06-2017 02:39 PM

Perhaps your ex is trying to show undue hardship. I know when my daughters ex's lawyer used Divorcemate to prove that his CS would be a hardship to pay the judge said. What is your 150 line on Tax Return? Then he looked up the table and set CS at the table amount

Ontario
1 child
$xxxx on,line 150

And dismissed all the other calculation telling her ex to manage his financial affairs better.

.......


Finally, if awarding the table amount would cause undue hardship to the payor, the court has discretion under s. 10 to deviate from the Table amount. Courts in Ontario have indicated that the test for undue hardship is a very difficult one to meet. In order to show undue hardship, the support payor must first establish that his or her household standard of living would be lower than that of the other parent if the Table amount were enforced. (Schedule 1 of the Guidelines contains the method to be used to determine standards of living of each household for the purposes of this comparison.)

The support payor then must go on to show that he or she meets one of the criteria specified in s. 10(2) as potentially creating undue hardship. Those criteria are:

Unusually high debts incurred to earn a living or to support the family prior to separation;
Unusually high expenses associated with exercising access to the children;
Other support obligations; or
Responsibilities for other children living in the household.
Only if both elements of the test are met does the court have discretion to decrease the Table amount as it considers appropriate.


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