Claiming Legal Fees (Case Law) For Tax Deduction in Child Support Matters

[Mess]

Just to clarify this, Rioe, it is an issue because we claim the initial costs as a deduction against income, so no, the taxes have not been paid.

Imagine a gross income of $100k, and legal costs of $30k in 2012. We deduct the costs and pay tax on a net income of $70k.

The trial ended the last week of December. The judge gives the decision in January, or later. The costs are awarded in 2013.

We now have received a tax deduction for $30k, but have actually spent little or none of it.

The costs award must be added back into income. The only point I am unclear on, I vaguely recall a form to adjust expense deductions for a previous year. I am not sure if this would be the route, or if the CRA would rather the costs (that specifically applied to the intitial deduction) be treated as income in the year they are received.

[Rioe]

I don't know anything about this legal and tax stuff, but I cannot believe that a costs award would be taxed as income! You paid your legal fees out of post-tax income, and just because you are being reimbursed doesn't make it income again. That would be like buying something from a store, then returning it and getting your money back and being taxed on the refund!

The only thing I can see that would be complicated would be refiling a past income tax return if you had claimed for legal fees on it. If the other side later paid your costs, then you would have to remove the claim and correct your return. And surely it would be after actual payment was received, not just the order, because as we all know, that doesn't guarantee payment.

[OhMy]

Thank you for clarifying that Mess.


Out of curiosity;
If the costs awarded were not only awarded towards establishing CS, but towards other issues or matters in court, how does one go about figuring out which portion of the costs awarded were attributed to establishing CS?

[Mess]

Expenses should be counted during the period the services were performed regardless of how they are paid.

If you paid a retainer the previous year, you just had an asset and the law firm had a liability.

If you paid the following year, then you had a liability for services performed, it was still an expense for that year. Whether you owe the law firm, or paid with your credit card, you still incurred the expense.

As far as receiving costs, I am not certain how CRA prefers this, but I can find out on Monday. For now, I would suggest that if you claimed the expense in 2012 and received the costs award in 2013, you balance the books by declaring that award as income in 2013. This would only be for the amount you claimed as an expense.

[golf.fanatic]

I thought I read somewhere that if you claimed the legal fees and then were awarded costs in court -costs that would go against those fees except for the fact you already paid them - then you have to report that at some point. Basically you can't get the tax credit for them and be reimbursed for them via a costs award. Now I'm confused!

[OhMy]

Ask your legal counsel to provide you with a letter outlining what your expenses are related to establishing child support, they will outline it all for you so you can input the tax deduction on your income tax.

I've never heard of costs awarded as being included as income. Costs awarded and paid towards establishing cs needs to be applied to the legal fees you incurred to establish cs though.

[golf.fanatic]

Claim only what is paid or what is billed?

A bit of a different take on this. I know I can claim my legal expenses for establishing child support. I paid a retainer in later 2011 but wasn't billed for most of the services related to that retainer until 2012. I also received a bill for services provided in 2012 that I didn't pay until early 2013. So, can I claim only what I PAID in 2012 or for the services that I was billed?

Similarly, I understand that if I am awarded costs (trial in April) that I'll need to include that as income in my next taxes. But do I actually have to receive the costs from my ex before I need to include it? For example, if I'm awarded costs as $10,000 but don't ever see a dime from my ex, do I still have to include it as income in subsequent years taxes or only include as receive (e.g. $1000 received in 2013, $1000 in 2014 etc)? Thanks for any help!

[Unevenplayingground]

Hard to say... If the mother is the primary caregiver and custody is with the mother possibly not. Not an expert in this area but, the jurisprudence in support of this article is about 50-50 access and joint custody dispute. So not sure how it could be leveraged in the matter you are describing.

The best person to ask would be a tax lawyer and second best a chartered accountant on the tax Rule.

Good Luck!
Tayken

Thank you!

[Tayken]

Tayken,

I don't think I am getting this 100% (it has been a long few days). I'm going to try and explain this, and hope it makes sense.

Common law couple split 2002.
Have verbal shared custody agreement.
In 2005 they both sign written agreement (amongst themselves) stating shared custody, with the ex-husband paying cs.
in 2011 husband is relocated due to employment, custody "battle" starts, also includes working out new CS payment, as child stayed with mother until primary custody was determined.

Can the father claim any legal fees associated with the cs? I'm thinking no, but just want to make sure.

Thank you for any feedback!

Hard to say... If the mother is the primary caregiver and custody is with the mother possibly not. Not an expert in this area but, the jurisprudence in support of this article is about 50-50 access and joint custody dispute. So not sure how it could be leveraged in the matter you are describing.

The best person to ask would be a tax lawyer and second best a chartered accountant on the tax Rule.

Good Luck!
Tayken

[Unevenplayingground]

Hi All,

I know this question comes up often on the forum so I thought this case law and following articles regarding claiming legal fees on line 221 was important. A parent on April 19, 2010 won the right to claim legal fees in an appeal setting forth the case law for tax deductions for a payer of child support to deduct legal fees from their taxes.

The case law is as follows:

Trignani v. The Queen, 2010 TCC 209 (CanLII)
Date: 2010-04-19
Docket: 2008-3989(IT)I
URL: CanLII - 2010 TCC 209 (CanLII)
Citation: Trignani v. The Queen, 2010 TCC 209 (CanLII)

Article in the Lawyers Weekly on the subject:

"Child support payer can deduct legal fees spent on child support bid"
- "Father can deduct even though he has paid, not received, support"

The Lawyers Weekly - May 7, 2010

Another article on the topic:

Child Support Payer can Deduct Legal Fees spent on Child Support Bid
Cristin Schmitz for The Lawyers Weekly
May 7, 2010



Child Support Payer can Deduct Legal Fees spent on Child Support Bid - Canadian-Lawyers.ca

Good Luck!
Tayken

Tayken,

I don't think I am getting this 100% (it has been a long few days). I'm going to try and explain this, and hope it makes sense.

Common law couple split 2002.
Have verbal shared custody agreement.
In 2005 they both sign written agreement (amongst themselves) stating shared custody, with the ex-husband paying cs.
in 2011 husband is relocated due to employment, custody "battle" starts, also includes working out new CS payment, as child stayed with mother until primary custody was determined.

Can the father claim any legal fees associated with the cs? I'm thinking no, but just want to make sure.

Thank you for any feedback!

[mememe]

It was claimed in my 2011 tax return already. I just hope it is not flagged or that they don't accept it.

[torontonian]

You have/will claim/ed the amount your lawyer gave you to claim on your taxes, for 2011 it was on line 221...

[torontonian]

Google is a wonderful tool: ITNEWS-24 - Income Tax - Technical News No. 24

[mememe]

My accountant said it might be a flag for an audit. I hope not.

I don't understand where I find this------Technical News #24 of Oct 10 2002 allowing it.

[torontonian]

I am quoting you CRA's own publication regarding claiming "legal costs incurred to obtain SS"... check the thread http://www.ottawadivorce.com/forum/f...89/#post106237

In particular posts by Dinkyface and Mess.