Citation: 2010 TCC 209
Date: 20100419
Docket: 2008-3989(IT)I
BETWEEN:
ENNIO TRIGNANI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] The issue in this appeal is whether the appellant, Mr.
Ennio Trignani, is entitled to a deduction in computing income for legal fees
in the amount of $5,375. The appellant submits that the expenses are deductible
on the basis that they were incurred to obtain child support.
[2] In an assessment made under the Income Tax Act
for the 2006 taxation year, the deduction was disallowed in its entirety.
Background facts
[3] The appellant and his former spouse separated in July
2000. They had one child, who was very young at the time of the separation.
[4] Under a separation agreement made in August 2000:
·
there was no provision for spousal
support,
·
the parties agreed to joint
custody of the child,
·
the appellant was to pay monthly
child support in the amount of $350, and
·
an equalization payment was to be
made in respect of net family property.
[5] In the
spring of 2001, the appellant and his
spouse each filed petitions for divorce. They also each requested sole custody
of the child and claimed child support from the other spouse.
[6] In May 2001, an order on consent was issued by a judge
of the Ontario Superior Court of Justice. It provided:
·
the appellant was to have sole interim
custody of the child,
·
the spouse was to have interim
access 50 percent of the time with supervision, and
·
the appellant was to continue to
pay monthly child support in the amount of $350.
[7] Notwithstanding this arrangement, for the next several
years the appellant had physical custody of the child for the majority of the
time because appropriate supervision at the spouse’s residence was not
available.
[8] In December 2006, an order of divorce was issued by
the Ontario court pursuant to minutes of settlement. In addition to granting the
divorce, the order provided:
·
the parents were to have joint
custody of the child,
·
the appellant was to pay monthly
child support in the amount of $443;
·
the appellant was to pay monthly
spousal support in the amount of $1,650, and
·
a further division of family
property was to be made.
[9] In 2006, the appellant paid legal fees in respect of
this matter in the amount of $36,185.35.
[10] In his income tax return for 2006, the appellant
claimed a deduction in the amount of $5,375 as an estimate of the portion of
the legal fees that were attributable to the claim for child support.
[11] In a letter written in 2008 by the lawyer who provided
the legal services, it was estimated that 65 percent of the 2006 legal fees
($36,185.35) were attributable to the child support issue, and that 100 percent
of the legal fees paid in 2007 ($7,118.19) were attributable to this issue. The
lawyer did not testify.
[12] According
to the testimony of the appellant, which I accept, custody was the most significant issue in the divorce
proceeding. Child support was not a significant issue, except in so far as it
would vary depending on who had custody.
Analysis
[13] It has generally been accepted that legal expenses
incurred to obtain child support are deductible in computing income: Wakeman
v. The Queen, [1996] 3 CTC 2165; McColl v. The Queen, 2000 DTC 2148;
Sabour v. The Queen, [2002] 1 CTC 2585 (in obiter at para. 9);
and Rabb v. The Queen, [2006] 3 CTC 2266.
[14] The principle has also been accepted by the Canada
Revenue Agency, as evidenced by Interpretation Bulletin IT-99R5, at para. 17.
[15] In making the assessment, it appears that the Minister
did not apply this principle because it was assumed that the appellant had not made
a formal claim for child support (Reply, para. 19(f)).
[16] It is clear from the evidence, though, that this
assumption was incorrect. In April 2001, the appellant made a claim for sole
custody and child support in an answer and counterpetition filed in the Ontario
Superior Court of Justice.
[17] At the hearing, counsel for the respondent raised two
arguments in support of the assessment. First, it was argued that in 2006 the
appellant did not have a right to receive child support from his spouse because
the May 2001 order required the appellant to pay child support. Second, it was
argued that the appellant had abandoned his claim for child support.
[18] The first
argument appears to be based on a long-standing principle that has been applied
in the context of spousal support. Under this principle, legal fees incurred to
establish a right to spousal support were considered to be on account of
capital and not deductible by virtue of s. 18(1)(b). This is in contrast
to fees incurred to enforce a pre-existing right, which are on current account.
[19] More
recent judicial decisions have questioned the correctness of this principle and
it appears that the CRA no longer follows it: Nissim v. The Queen,
[1999] 1 CTC 2119; Income Tax Technical News, No. 24,
October 10, 2002. At this point, however, the jurisprudence is not clearly
established: Nadeau v. The Queen, 2003 FCA 400, at para. 7.
[20] This
appeal does not concern spousal support, however, and I am not aware that the
above principle has ever been applied to child support.
[21] It
appears that with respect to child support, legal expenses have been considered
to be on current account on the basis that there is a pre-existing right by
virtue of a legislative obligation on each parent to support their children: McColl,
above.
[22] If I
understand the respondent’s position correctly, it is that the traditional
capital distinction applies here. The respondent submits that in 2006 the
appellant did not have a pre-existing right to child support because this right
was extinguished by the May 2001 order which entitled the appellant’s spouse to
interim child support.
[23] I do not
agree with this submission. In my view, the May 2001 order did not extinguish
the appellant’s right to child support. The
legislative obligation to support children does not cease with a court order,
and especially a court order providing for interim support only.
[24] I now
turn to the respondent’s second argument, which was that the appellant had abandoned the claim for child support.
[25] In order for this argument to succeed, it must be
established that the claim for child support was abandoned before the relevant
legal services in 2006 were provided.
[26] This has not been established by the evidence.
[27] In cross-examination, the appellant acknowledged that the
child support claim was abandoned, as evidenced by a clause in the 2006 court
order. I am not prepared to take the leap that the claim was abandoned before
the relevant legal services were provided. It is quite possible that the claim
was abandoned only when the minutes of settlement were entered into, which
likely was after most of the legal services were rendered.
[28] The
evidence as a whole makes a strong case that the claim for child custody (and
consequently child support) in 2001 was bona fide, not frivolous, and
had a reasonable prospect of success. In the absence of evidence to the
contrary, I am not willing to presume that this claim was not being vigourously
pursued in 2006.
[29] Finally, I
would briefly comment that in reaching this conclusion I have not attached any
weight to the 2008 letter from the lawyer which apportioned the legal fees. The
lawyer did not testify and was not subject to cross-examination.
[30] The appeal will be allowed on this basis. The
appellant shall be entitled to costs in accordance with the tariff.
Signed at Toronto, Ontario this
19th day of April 2010.
“J. M. Woods”
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