Claiming Legal Fees For Tax Deduction in Spousal Support Matters

T

torontonian

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Hi - I just received a letter from CRA not accepting the legal fees deduction I claimed (for establishing SS). HELP?? My deduction was accepted last year...
My lawyers gave me a personalized letter outlining what percentage of the fees was dedicated to the issue of SS. Now what? Tayken - any legal insight? THX
 
Thanks - I will try and change the percentage to indicate it was for CS... but the divorce order doesn't include CS...(we decided to qualify the kid as "independent", so no CS - despite many hours of discussing the CS issue over the year). Is this a lost cause?
 
Torontonian, have a look at the following CRA publication:
Support Payments
To establish whether the payments you pay or receive are support payments, see the following chart:
Are your payments considered support payments?
If you answer "yes" all the way down the chart, the payments you either pay or receive do qualify as support payments, therefore see:
Legal Fees – Payer
A payer cannot claim legal fees (at line 220, 221 or 232) incurred to:
· get a separation or divorce;
· establish, negotiate, or contest the amount of support payments; or
· establish custody or visitation rights to a child.
Legal Fees – Recipient
A recipient can deduct, on line 221 of their income tax and benefit return, legal fees paid to:
· collect late support payments;
· establish the amount of support payments from their current or former spouse or common law partner;
· establish the amount of support payments from the legal parent of their child (who is not their current or former spouse or common law partner) where the support is payable under the terms of a court order; or
· try to get an increase in support payments.
A recipient can also deduct, on line 232 of their income tax and benefit return, legal fees paid to try to make child support payments non taxable.
A recipient cannot claim legal fees incurred to:
· get a separation or divorce; or
· establish custody or visitation rights to a child.
Legal fees paid to collect a lump-sump payment which does not qualify as a support payment are not deductible (Lump-sum payments).
 
I get a letter every year from CRA. All you do is send in copies of your letter from your lawyer and hopefully you have itemized statement to go with it. Above post spells it out for you.
 
Thanks - this is post-submission of lawyer letters - as per my first post... I'll call them and see what the problem is... The only things worrying me is Paragraph 17. 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.
 
A very good issue for people to put forward to a lawyer they are just retaining when they start their separation/divorce process.
 
torontonian said:
Hi - I just received a letter from CRA not accepting the legal fees deduction I claimed (for establishing SS). HELP?? My deduction was accepted last year...
My lawyers gave me a personalized letter outlining what percentage of the fees was dedicated to the issue of SS. Now what? Tayken - any legal insight? THX
Click to expand...

http://www.ottawadivorce.com/forum/...aw-tax-deduction-child-support-matters-12709/

It is for "CS" and not "SS" claims and only for the portion of determining the value and not custody and access decisions. There was also another thread if you search for it where I believe OrleansLawyer gave some guidance on the matter. (How much of of a split of a legal bill represents CS determination.)

I don't recall the thread off the top of my head.
 
The plot thickens .... this is from a May/June 2010 article
http://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=10&ved=0CFoQFjAJ&url=http%3A%2F%2Fwww.marmerpenner.com%2Fnewsletters%2F10%2FMay-June%25202010%2520Newsletter%2520-%2520Deductibility%2520of%2520Legal%2520Fees.doc&ei=Ve1HUNPZOMuv0AGlh4G4Cg&usg=AFQjCNFnMTSj46OIvZPAk-doTcfD5mdCDw

"Shortly after release of this document (IT-99R5, most recently modified Sept 6, 2002), CRA issued its Income Tax Technical News No. 24. This technical news release stated the following: “Following the decision in the case of Gallien v. the Queen (2001) 2 CTC 2676, 2000 DTC 2514 (TCC – informal procedure), CRA 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. We also now 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. "

BTW: the article also addresses deductability of legal fees incurred by the CS PAYOR (which was not the OP's question)
 
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I think it is important, if you are talking about SS and not CS, to realize that you can claim your legal expenses for "defending or collecting" SS. I don't believe you can claim any portion that has to do with your divorce.

My ex takes me to court 2 x year to try to have SS squashed. I can therefore claim 100% of my legal fees.

Maybe provide us with a bit more information for clarification. Your lawyer should really know what you need for documentation, assuming you qualify to claim any legal fees.
 
torontonian said:
Hi - I just received a letter from CRA not accepting the legal fees deduction I claimed (for establishing SS). HELP?? My deduction was accepted last year...
My lawyers gave me a personalized letter outlining what percentage of the fees was dedicated to the issue of SS. Now what? Tayken - any legal insight? THX
Click to expand...

I also need to supply a letter to the CRA every year.




This is what my lawyer typically writes. I also include a copy of his ledger showing the fees paid and CRA accepts my claim.
  • According to CRA technical interpretation No. 24, I hereby confirm legal costs totalling $xxxx, including disbursements and GST, were paid. It is our estimate that xx% of these costs pertained to obtaining spousal and or child support amounts under the Divorce Act. I trust all is in order.........blah, blah, blah, etc, etc.
Something close to this anyways.

Hope this helps.
 
My lawyer's letter was even shorter:

Dear Madame:

This letter is to confirm that in 2011 you paid [WAY TOO FUCKING MUCH] towards fees for my services, and that 100% of those fees related directly to obtaining spousal support.
 
And my letter gives a list of all payments + "I am in the view that 50% of the legal fees paid in 2011 relate to the issue of SS". I don't have the "obtaining" part - would that be it?

Background: we lived apart for many years with ex refusing to pay SS, then spent almost 2 years in court to finally get SS ordered. (does this help as far as clarification was requested?)
 
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I get this Every Year!

You need a Letter Signed from your Lawyer, That, Lets say you spent $10,000.00 in legal fees....Perhaps 35% was for SUPPORT, either for Yourself or Children.
That is Tax Deductible.

Been doing this since 2007...
I Now get Letters ahead of time from my Lawyer...because..They Will Always Audit!!

Good-Luck!!
 
So... I've been reading this over and over... As a payor, I CAN NOT deduct my legal fees? Ex has sole custody so there is no CS going my way at all.
 
RJDoe: I believe this is the situation: You are using the offset calculation because you have shared (i.e. 50-50 time) custody, and you are CS PAYOR because you earn more. Then, if your ex is NOT contributing enough according to their income, then you can deduct the legal fees (because really you are fighting to have the ex contribute more CS **for the child's benefit**). In terms of $/cs payments, you are fighting to pay LESS CS, because your ex should be paying MORE.
 
dinkyface said:
RJDoe: I believe this is the situation: You are using the offset calculation because you have shared (i.e. 50-50 time) custody, and you are CS PAYOR because you earn more. Then, if your ex is NOT contributing enough according to their income, then you can deduct the legal fees (because really you are fighting to have the ex contribute more CS **for the child's benefit**). In terms of $/cs payments, you are fighting to pay LESS CS, because your ex should be paying MORE.
Click to expand...

Offset: both parents pay CS and both parents receive CS, even if the payment is simplified by making it the difference. So both parents could claim the legal fees.

Non-offset: only the CS recipient can claim.

Doesn't make a whole lot of sense to me that a payor can't claim fees required to make sure the amount paid is fair, if the recipient is playing games, but I guess in that case the payor should have asked that costs be paid by the recipient and the issue is moot because the fees would be zero.
 
Update: talked to CRA who didn't know about the Tax Technical News #24.. Had to fax it to them!!!! They are having a SENIOR manager look into it! I feel like I may be audited after this ;p
 
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