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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Are legal fees paid to enforce rights to a spouse's pension assets on a marriage breakdown deductible?
Position: No.
Reasons: Specifically prohibited under paragraph 60(o.1) of the Act.
XXXXXXXXXX 2001-006851
M. P. Sarazin, CA
February 27, 2001
Dear XXXXXXXXXX:
Re: Legal Fees Relating to Split of Pension Assets on Marriage Breakdown
This is in reply to your facsimile of February 3, 2001, wherein you requested our views as to whether legal fees incurred to enforce a right to a former spouse's pension assets on the dissolution of their marriage would be deductible in computing the taxpayer's income for purposes of the Income Tax Act (the "Act").
Confirmation of the tax consequences associated with completed transactions are provided by the relevant tax services office. Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R4 dated January 29, 2001, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.
The Agency's general views regarding the deductibility of legal fees can be found in Interpretation Bulletin IT-99R5 titled "Legal and Accounting Fees". You will note that paragraph 25 deals with your question. It states that paragraph 60(o.1) applies to allow a taxpayer to deduct eligible legal expenses paid to collect or establish a right to a pension benefit. Eligible legal expenses under paragraph 60(o.1) do not include legal expenses relating to a division or settlement of property arising out of, or on a breakdown of, a marriage. Consequently, legal fees incurred to enforce a right to a former spouse's pension assets on the dissolution of their marriage are not deductible by the taxpayer.
It should also be noted that where an agreement in respect of a division or settlement of property is negotiated between former spouses, including the division of pension assets, and the terms of the agreement are not satisfied by one of the parties to agreement, legal fees relating to the enforcement of the pre-existing entitlements may be deductible by the former spouse. The enforcement of a pre-existing entitlement under an existing agreement in respect of a division or settlement of property would be considered to be separate and distinct from the original division or settlement of property arising out of the marriage breakdown. Paragraphs 17 through 21 of IT-99R5 reflect the Agency's views on legal costs and support amounts with paragraph 18 dealing specifically with the enforcement of pre-existing rights to support amounts.
In order to determine whether or not specific payments would be deductible, we would have to review all of the relevant facts in the context of an advance income tax ruling request.
We trust these comments will be of assistance.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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