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: Deductibility of legal fees in regards to child support
Position: Legal costs incurred by the payer of child support are not deductible.
Reasons: The costs are personal or living expenses.
XXXXXXXXXX
Dear XXXXXXXXXX :
The office of the Right Honourable Stephen Harper, Prime Minister of Canada, forwarded to me a copy of your correspondence concerning the deductibility of legal costs incurred in connection with the payment of child support. Please accept my apology for this delayed response.
In order for an expense to be tax deductible, it must relate to a source of income and must also comply with the rules of deductibility applicable to that source. For example, to be deductible from employment income, an expense must result from a contractual employment requirement and must be one of the specific expenses listed in the Income Tax Act. To be deductible from business or property income, an expense must be incurred for the purpose of earning income from that business or property.
The legal costs incurred by a payer of child support are not expenses paid to earn income. In addition, paragraph 18(1)(h) of the Act specifies that personal or living expenses are not deductible from income. As outlined in paragraph 21 of Interpretation Bulletin
IT-99R5 (Consolidated), Legal and Accounting Fees, legal costs incurred by the payer to negotiate or contest support payments are personal or living expenses. You can find Interpretation Bulletin IT-99R5 on the Canada Revenue Agency (CRA) Web site at www.cra.gc.ca/E/pub/tp/it99r5-consolid/README.html.
It is true that a recipient of child support can deduct related legal costs. The courts have consistently held that a recipient's legal expenses are deductible because a pre-existing legal right to support exists. For more information on the deductibility of legal expenses, I invite you to consult Income Tax Technical News No. 24, which is available on the CRA Web site at www.cra.gc.ca/E/pub/tp/itnews-24/README.html.
The CRA is responsible for administering the current tax legislation, while the Department of Finance Canada is responsible for developing and evaluating tax policy. The concerns you have raised about the different rules that apply to payers and recipients of child support are a matter of tax policy. To allow the deduction you propose would require a change to the legislation, and any such change would have to be proposed by
the Minister of Finance and approved by Parliament. Therefore, I have forwarded a copy of our correspondence to the Honourable James M. Flaherty, Minister of Finance, for his consideration.
I trust that the information I have provided is helpful.
Sincerely,
Jean-Pierre Blackburn, P.C., M.P.
Minister of National Revenue
c.c.: The Honourable James M. Flaherty, P.C., M.P.
Minister of Finance
House of Commons
Ottawa ON K1A 0A6
Rita Ferguson
519-645-5261
2009-034228
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