3 April 1995 Internal T.I. 9501067 - LEGAL FEES TO COLLECT US SOCIAL SECURITY

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:

whether client may deduct legal fees incurred in order to establish entitlement to U.S. Social Security benefits

Position TAKEN:

no

Reasons FOR POSITION TAKEN:

disability insurance benefits paid under the Social Security Act up to the age of 65 (client is under 65 years of age) are not considered to be income and therefore are not subject to tax in Canada hence legal fees incurred to secure these non taxable benefits are not deductible. Provisions of paragraph 60(o.1) do not permit a deduction

			April 3, 1995

	Halifax Tax Services	Headquarters
	Client Assistance	Income Tax Rulings and
		  Interpretations 																	                     	Directorate
	Attention:  J.D. Glennie	Sandra Short
(613) 957-8953

		950106

Legal Fees incurred to collect U.S. Social Security Benefits

This is in reply to your correspondence of January 9, 1995 which asks whether a client may deduct legal fees incurred in order to establish entitlement to U.S. Social Security benefits. We have assumed for the purposes of our reply, and the client's employment history appears to support, that the client is a resident of Canada.

We note that the correspondence to the client from the Social Security Administration states that she is entitled to disability benefits and that they are the only benefits which she is currently entitled to receive. She was born in 1938 according to the information provided by her to your office on December 20, 1994. Given this information, we bring to your attention the comments found in paragraph 2 of Interpretation Bulletin IT-122R2 which states:

United States social security benefits which are retirement insurance or survivors insurance benefits paid under the Social Security Act...are regarded as pension benefits when received by a resident of Canada and are included in income under subparagraph 56(1)(a)(i) of the Act. Disability insurance benefits paid under the Social Security Act up to the age of 65 are not considered to be income and therefore are not subject to tax in Canada. However, upon entitlement to social security benefits at the age of 65, the payments are regular social security benefits which are included in income as noted above.

It is our view that the client is not entitled to any deduction in respect of the amount withheld by the Social Security Administration pending any actual bill for legal costs. We note that at this time no amount of legal fees has been established or paid. Should an actual amount of legal fees be paid by the client, our view continues to be that no deduction is available to the client because the benefit being received by the client is not income.

We considered whether an amount could be deducted under paragraph 60(o.1) of the Act and in doing so, speculated whether the disability benefit provided under the United States social security system is considered a "benefit under a pension fund or plan (other than a benefit under the Canada Pension Plan or a provincial pension plan as defined in section 3 of that Act) in respect of the employment of the taxpayer..." as required by paragraph 60(o.1) of the Act. However, we believe that as disability insurance benefits paid under the Social Security Act up to the age of 65 are not considered to be income and hence not subject to tax, legal fees which may be incurred to secure these benefits are not deductible.

P.D. Fuoco
Section Chief
Personal and General Section
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch