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 deductible when they are incurred in connection with the issuance of a child support order under the Divorce Act?
Position: Yes
Reasons: See a detailed discussion of this issue in file # 983147
XXXXXXXXXX 982880
M. Eisner
March 31, 1999
Dear XXXXXXXXXX:
Re: Legal Fees
This is in reply to your letter of April 22, 1998, which was forwarded to us by the Winnipeg Tax Services Office. In your letter you have requested clarification of the Department’s position on the deductibility of legal fees incurred in connection with the issuance of a child support order. We apologize for the delay in replying.
While you have provided some information with respect to a specific individual, it is our understanding that you are aware that the issue you have raised will be dealt with in a general manner.
Your concern is whether legal expenses incurred by a taxpayer in respect of a child support order issued under the Divorce Act are deductible. You have referred to the Family Law Act of Ontario and to paragraphs 16 and 17 of Interpretation Bulletin IT-99R4 “Legal and Accounting Fees”. IT-99R4 has now been replaced by Interpretation Bulletin IT-99R5 (copy enclosed) which is dated December 11, 1998. However, in relation to the issue you have raised, IT-99R5 includes similar comments to those which you have referred to in IT-99R4. Accordingly, our discussion of the issue you have raised has been made in respect of IT-99R5. Also, the Department’s views in paragraphs 17 to 21 of IT-99R5 are based on the amendments to the child support legislation that apply to amounts received after 1996. Of particular importance are the comments in paragraph 19 of the bulletin which indicate that certain legal costs may be deductible even though an amount received as a child support amount is not required to be included in income of the recipient.
You have indicated that it is the Department’s position that legal costs incurred in establishing a right to support amounts, such as a support order under the Divorce Act, are not deductible as the costs are on account of capital or are personal and living expenses. On the other hand paragraph 18 of IT-99R5 indicates that legal costs incurred to enforce a pre-existing right to either interim or permanent support amounts are deductible, and that a pre-existing right can arise from legislation such as Part III of the Family Law Act of Ontario.
Our discussion below is based on the assumption that the amounts of support for a child or children satisfy the definitions of “child support amount” and “support amount” within subsection 56.1(4) of the Income Tax Act (the “Act”) and that the legal costs have been incurred by a recipient.
Section 15.1 of the Divorce Act states that “A court of competent jurisdiction may, on application by either or both spouses, make an order requiring a spouse to pay for the support of any or all children of the marriage.” Paragraph 11(1)(b) of the Divorce Act states that “it is the duty of the court to satisfy itself that reasonable arrangements have been made for the support of any children of the marriage, having regard to the applicable guidelines, and if such arrangements have not been made, to stay the granting of the divorce until such arrangements are made”. With respect to the Family Law Act of Ontario, subsection 31(1) thereof provides that “Every parent has an obligation to provide support for his or her unmarried child who is a minor or is enrolled in a full time program of education, to the extent that the parent is capable of doing so.”
In the case of the Family Law Act, the Department has accepted that a pre-existing right exists as a parent has an “obligation” to support his or her children. On the other hand, with respect to the Divorce Act, the wording is not as clear with respect to the issue of whether there is a pre-existing right. Nonetheless, we have recently considered the deductibility of legal costs in obtaining a child support order under the Divorce Act and have concluded that the wording in section 15.1 and paragraph 11(1)(b) of the Divorce Act is similar (i.e., in terms of the obligation of the parents it establishes in respect of child support) to that in Part III of the Family Law Act of Ontario. Accordingly, since we have indicated that legal costs incurred in respect of a child support order issued under the Family Law Act are normally deductible, legal costs incurred in respect of a child support order issued under the Divorce Act are also considered to be generally deductible.
As a further comment, it remains our view that legal fees incurred in connection with spousal maintenance are not deductible because the courts do not have the same discretion with child maintenance as the courts have with spousal maintenance under the Divorce Act. In addition, in the case of legal fees related to obtaining a divorce which includes legal fees for maintenance of a child where the right to maintenance for that child already existed under law, the onus would be on the taxpayer to provide a breakdown of the legal fees to establish which portion of the legal fees pertained directly to obtaining maintenance for his or her child. The legal fees relating to obtaining a divorce, obtaining custody of a child or establishing visitation rights would not be deductible.
When the Department revises IT-99R5, it will amend the first sentence in paragraph 17 to clarify that it is the legal fees incurred in establishing the right to spousal support under the Divorce Act that is not deductible.
We trust that you will find the foregoing satisfactory.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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