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Financial Issues This forum is for discussing any of the financial issues involved in your divorce. |
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#21
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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. |
#22
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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. |
#23
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Thanks for your messages Mess. Just one clarification, are your required to report the income for the costs award in the year awarded or as they are received? So from your example, judge awards costs of $30k in 2013 but you don't actually receive any payment from the other party toward those costs. Surely you wouldn't have to claim it as income???
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#24
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If you were a business you would count the money when it was earned, not when it was paid. A comparison would also be your last paycheque for the year usually is issued in January, but the money is counted for December. That being said, CRA is not going to complain if you are using "cash accounting" and reporting it when received, as long as it is reported.
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#25
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asked my tax lady if I could claim legal costs in obtaining child support and she said no. its just a personal expense
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#26
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Get a new tax lady - she's wrong.
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#27
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plz explain ? didn't claim 2000 bucks
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#28
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Did you read over this thread? Was there something different about your case that makes you ineligible?
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#29
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I think in Canada only recipients can claim legal expenses...
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#30
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for fees relating to custody, child support and spousal support...
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