Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Are legal fees incurred to divide a farm property on divorce deductible?
Position: 1. No, the legal fees are not deductible.
Reasons: Legal fees attributable to the division of property on the dissolution of a marriage are generally not incurred for the purpose of gaining or producing income pursuant to paragraph 18(1)(a) and are non deductible capital outlays pursuant to paragraph 18(1)(b). The legal fees do not fall within the statutory exception provided in subsection 60(o.1).
XXXXXXXXXX 2008-027006
Robert Dubis
May 8, 2009
Dear XXXXXXXXXX :
Re: Legal Fees Incurred to Divide a Farm Property on Divorce
This is in reply to your facsimile dated March 3, 2008, wherein you requested a ruling as to whether legal fees incurred to divide a farm property on the dissolution of a marriage would be deductible in computing the taxpayer's income pursuant to paragraph 60(o.1) of the Income Tax Act (Canada) ( "ITA").
Written confirmation of the tax implications associated with a particular transaction is provided by the Rulings Directorate only where the transaction is proposed and is the subject matter of an advance income tax ruling request. Advance ruling requests must be submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings. Where a particular transaction has already been completed, requests for confirmation of the tax consequences associated with the particular transaction should be addressed to the relevant tax services office, a list of which is available on the CRA website at www.cra-arc.gc.ca. The following comments are, therefore, only of a general nature.
The CRA's general views regarding the deductibility of legal fees can be found in Interpretation Bulletin IT-99R5, Legal and Accounting Fees. Paragraph 1 outlines the general requirement that any legal fees must be incurred for the purpose of gaining or producing income from a business or property and they must not be outlays of a capital nature.
Paragraph 60(o.1) of the ITA provides a statutory exception to the general requirements. In that respect, paragraph 25 of Interpretation Bulletin IT-99R5 states that paragraph 60(o.1) of the ITA applies to allow a taxpayer a deduction for eligible legal expenses paid to collect or establish a right to a pension benefit or retiring allowance. It is our view that legal fees incurred to divide the farm property as a result of a breakdown of a marriage do not fall within the statutory exception provided in paragraph 60(o.1) of the ITA.
In our view, the legal fees incurred to divide a farm property on the dissolution of a marriage would generally not be for the purpose of gaining or producing income and that these expenditures are non deductible capital outlays.
We trust these comments will be of assistance.
Yours truly,
Roger Filion
Assistant Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch
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