Claiming Legal Fees For Tax Deduction in Spousal Support Matters

Pursuinghappiness said:
Thanks Torontonian....I have an 8-10k deduction to claim in fees related to SS and CS...I was hoping I could claim it all.
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I have claimed more than that and CRA has accepted the deduction.

I file my taxes sometime in April and usually by July CRA sends me a letter asking for documentation supporting my claim. This will happen every year you claim lawyer fees. I submit the letter my lawyer provided for me, and CRA accepts the claim.


In my opinion the wording is key;
  • 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.
 
QUESTION: IS THERE A MAXIMUM DEDUCTION FOR THESE FEES THAT CAN BE CLAIMED? IF SO, WHAT IS IT?
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Prima facie, there is no maximum deduction.

However, I would be cautious about advancing a claim for any deduction that is larger than the value (lifetime) of the maximum value of your claim, keeping in mind that even unsuccessful claims are deductible if they are made in good faith.
 
Thank you Forum Posters

Thank you Forum Posters

Just wanted to bump this thread and say thank you to the posters who contributed.

I got word that my legal fees deduction was allowed using the document advice in this thread...so I'm getting a sizeable refund.

Its a bit of nice karma considering that my ex can't claim his fees as the "payor" ...he's been dragging me needlessly and endlessly through court nonsense and has to pay his fees with no tax relief.

Thank you again...I appreciate the information.
 
Happy it turned out for you. Be good to yourself and buy something you normally wouldn't. You deserve it!
 
Thank you Arabian. You gave me wonderful advice.

I'm actually going to save the money for my kid's Christmas this year. It will be nice to pay for presents and not have a credit card bill to deal with in January. I generally hate Christmas shopping but it should be a lot more enjoyable this year since I can do it nice and early!

(Sorry I know its blasphemous to talk about Christmas in April...)
 
So I asked this question to my lawyer and his response was as follows

The issue of Revenue Canada treatment of support is a tricky one for sure, and you may want to speak to an accountant about it. I have changed it as you requested. You asked me recently what percentage of legal fees relate to child support. I would have to say at this stage 20% at most (30% parenting, 20% child support, 20% spousal support, 30% property). My understanding is that you can only deduct legal fees that arise in relation to receiving a support order or agreement, of which there exists neither at this stage. Also, if she is entitled to receive spousal support (a claim she will respond with on the motion) I am not sure you will be able to deduct any. Your accountant will be the best person to discuss this situation with, if it becomes applicable. Obviously if you end up with custody and child support and no spousal support the situation would be different. I find that the Court is generally not that keen on making decisions based on tax rules, however.
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I am expecting some kind of order after my May motion. Should 50/50 and offset child support be ordered would I be able to claim 20% of my legal expenses from 2011, 2012, and later 2013?

I will end up being the payor using the offset. I have asked for my lawyer to explicitly write that we both owe each other the table amount.

The wording is as follows

An order directing that child support be paid, on the basis of a shared arrangement and in accordance with section 9 of the Child Support Guidelines, as follows, commencing on the first of the month following the sale of the Matrimonial Home:

i) The Applicant shall provide monthly child support for the benefit of the two children of marriage, in accordance with the Child Support Guidelines; and

ii) The Respondent shall provide monthly child support to the Applicant for the benefit of the two children of marriage, in accordance with the Child Support Guidelines.
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Lets say I am unsuccessful can I still claim the expense if I lose and for some crazy reason she gets more than 50/50.

Thanks
 
FB:

If you are the "payor" you cannot claim these fees. The rules are for the "obtaining" of SS or CS. If you pay it, you are not eligible for this.

Generally with offset, although both people pay...the higher income earner is the one who actually "writes a check." My understanding is that that person would not be able to claim legal expenses.

However, its worth checking with an accountant. CRA is heavy-handed on this deduction though...so be prepared to show documentation.

Also, 20% seems quite low.
<H2>Legal Costs to Obtain Support Amounts
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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 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 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.
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).
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</H2>
 
From the CRA website:

Line 221 - Carrying charges and interest expenses
You incurred certain fees to try to make child support payments non-taxable. Fees relating to support payments that your current or former spouse or common-law partner, or the natural parent of your child paid to you must be deducted on line 221. You cannot claim legal fees you paid to get a separation or divorce or to establish custody of or visitation arrangements for a child. For more information, see Guide P102, Support Payments.
Note
If you pay support, you cannot claim legal costs incurred to establish, negotiate, or contest the amount of support payments.
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Child Support Payer can Deduct Legal Fees spent on Child Support Bid - Canadian-Lawyers.ca

May 7, 2010
The Tax Court has ruled that a father with joint custody of his son is entitled to deduct the legal fees he spent to pursue child support, even though the father has always paid, rather than received, child support.
Legal expenses incurred to obtain a child support order are generally deductible from income by recipients, but the Canada Revenue Agency (CRA) says payers cannot deduct their legal fees for negotiating or contesting an application for support payments.
The appellant taxpayer challenged the CRA's refusal to let him deduct $5,375 in legal fees spent in 2006 trying to get child support as part of his five-year bid to obtain permanent sole custody of his child.
He has paid his ex-wife support for their son ever since the pair's 2000 separation. However under their 2006 divorce settlement, which was incorporated into a court order in December 2006, his ex-wife notionally pays him child support of $334 per month, corresponding to her income under the child support guidelines. That amount is set off against the $777 per month he owes her in child support, based on his income. That leaves him paying net child support of $443 per month.
On April 19 Tax Court Justice Judith Woods overturned the CRA's assessment which totally disallowed the $5,375 legal fees deduction.
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FB:

You can try to negotiate the deduction based on that case cite...its the same thing I'm doing to try to challenge the in-home separation CRA rule, however, I'm not optimistic that I'll be successful.

You'll have to try to do the deduction, get denied, pay the bill, then go through the informal appeal process. Its probably worth doing given the amount of legal fees you're going to rack up this year...but it won't be quick..so you'll have to wait it out.
 
Pursuinghappiness said:
FB:

You can try to negotiate the deduction based on that case cite...its the same thing I'm doing to try to challenge the in-home separation CRA rule, however, I'm not optimistic that I'll be successful.

You'll have to try to do the deduction, get denied, pay the bill, then go through the informal appeal process. Its probably worth doing given the amount of legal fees you're going to rack up this year...but it won't be quick..so you'll have to wait it out.
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I'm not going to file my taxes until after I get some kind of order. I'm getting a small refund so I don't have to file by the deadline.

I will know better what I can/can't claim once the order is issued.
 
as far as I know you can only claim legal fees if they are to defend an existing child or spousal support order. You can't claim costs to get your divorce or separation.
 
All this talk of entitlement......people seem to have ignored the good ol saying

"Ask not what your country can do for you; ask what you can
do for your country." :rolleyes:
 
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
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Are you paying support or receiving it?
If you are the payor--you cannot deduct any legal fees, if you are receiving SS you can deduct all amounts directly pertaining to this.
 
as far as I know you can only claim legal fees if they are to defend an existing child or spousal support order. You can't claim costs to get your divorce or separation.
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You can deduct for the order to establish/obtain SS. If you prove entitlement this deduction is allowed.

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.
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Again, payors generally can't take any deduction for legal fees...particularly for an order to establish.

There is case precedence for a number of interesting deviations to CRA's tax policies though...both for in-home separation and legal fees deduction.

I think its probably always a good idea to request an informal appeal. Can't hurt.
 
Agreed Pursuing, the deduction is not for legal fees in general but specifically those pertaining to establishing, defending or proving entitlement of SS. Also any accounting fees (a little more gray of an area) or CBV that pertain to SS can be used. I have requested that both my accountant and lawyer provide me with a letter stating what fees I have paid pertain to SS, and since 2009 I have had no issue with CRA claiming this.
 
Bumping this thread for a question:

My partner and I are working on my budget and taxes for next year so I can figure out my RRSP deductions for January. I have apx 18-20k paid this year in legal bills about 2/3rds of which is related to support which I plan to use as a deduction. However, what actually happened is that I moved from an interim order that I claimed my legal bill for last year to a final order that I paid for this year. I don't see anything in the CRA documentation that says it makes any difference. It simply states on the CRA website that I can claim any legal bill paid within the calendar year related to getting a support order. I just wanted to see if any posters had experience with this?

Also I have the last 6k that will be 8-9k by the time I'm done in legal bills that I'm planning to pay 1st qtr next year but its related to equalization. I'm assuming that I won't be able to claim those on my 2014 taxes?
 
Pursuinghappiness said:
Bumping this thread for a question:

My partner and I are working on my budget and taxes for next year so I can figure out my RRSP deductions for January. I have apx 18-20k paid this year in legal bills about 2/3rds of which is related to support which I plan to use as a deduction. However, what actually happened is that I moved from an interim order that I claimed my legal bill for last year to a final order that I paid for this year. I don't see anything in the CRA documentation that says it makes any difference. It simply states on the CRA website that I can claim any legal bill paid within the calendar year related to getting a support order. I just wanted to see if any posters had experience with this?

Also I have the last 6k that will be 8-9k by the time I'm done in legal bills that I'm planning to pay 1st qtr next year but its related to equalization. I'm assuming that I won't be able to claim those on my 2014 taxes?
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You cannot claim any legal fees for equalization or getting a divorce. Only for support.

My lawyer told me for me it was 20% of my bill. So that's what I claimed.
 
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