2 December 1991 Internal T.I. 9125777 F - Legal Fees to Defend Alimony Quantum

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.

912577

Legal Fees Incurred to Defend Right to Alimony

This is in reply to your fax communication of August 30, 1991, relating to the deductibility of legal fees.                       24(1)

You have asked for clarification as to whether the legal fees incurred to protect the right to alimony from a possible reduction in quantum is deductible in the same manner as legal fees incurred to enforce the payment of alimony or maintenance which has been included in income under paragraph 56(1)(b), (c) or (c.1) of the Income Tax Act (the Act).  You also asked for the statutory reference by which legal fees incurred to enforce the payment of taxable alimony or maintenance are deductible.

A brief review of the history of court cases relating to legal fees incurred on account of alimony appears to be in order before answering your question. 

Dating from the decision of Boos v MNR 61 DTC 520, court cases relating to the deductibility of legal fees incurred in respect of alimony and maintenance have typically centred around the issue of whether or not the fees were on account of capital and thus prohibited by paragraph 18(1)(b) of the Act.   In the Boos case, legal fees were incurred to confirm the pre-existing right to taxable income arising from the marriage and were thus held to be deductible.  In the relevant court cases where legal fees were allowed, the legal fees were seen as a method of enforcing a pre-existing right (similar to legal fees incurred to enforce collection of an account receivable by a business) rather than as the establishment of a new right as in the decision of Burgess v MNR 81 DTC 5192.   In the present case, it appears clear that a pre-existing right to the income existed and on that basis, it would appear that the legal fees should be deductible. There are no cases which deal specifically with legal fees relating to a challenge based solely to the quantum of the pre-established right to alimony or maintenance.  In paragraph 17 of IT-99R4 however, we adopt the position that legal fees incurred to increase the quantum of support are capital in nature and thus not deductible.  We feel that this can be distinguished from the situation where legal fees are incurred to defend the quantum from reduction in that once a right to alimony or maintenance has been established and quantified, a subsequent court challenge to increase the amount can be seen as an attempt to establish a new right whereas in the latter case it is the previously quantified right which is being challenged.

Accordingly, it is our view that the legal fees incurred to defend a pre-existing right to alimony or maintenance from a court challenge would be deductible in computing income.

We trust our comments will be of assistance to you.

P.D. FuocoChiefPersonal and General SectionBusiness and General DivisionRulings Directorate