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: Whether the legal fees incurred in a fiscal year to obtain child support can be carried forward to a subsequent year
Position: No. However, to the extent that the legal costs incurred in a particular year exceed the payer's income for the same year, a non-capital loss may be created. The non-capital loss can then be carried forward.
XXXXXXXXXX
N. Pulandiran
2011-039911
October 7, 2011
Dear XXXXXXXXXX :
Re: Carry Forward of Legal Fees Incurred to Obtain Increased Child Support
We are writing in response to your facsimile received on March 14, 2011, concerning the carry forward of legal fees incurred. More specifically, you have enquired whether the legal costs incurred from 2006 through 2009 to obtain an increase in child support payments can be carried forward and deducted in 2010.
Our Comments
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. This information circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. We are, however, prepared to provide the following general comments.
Generally, legal costs to obtain an increase in child support payments are deductible in the particular year that the legal costs are incurred, that is, on an accrual basis. Notwithstanding, where the amount of the deductible legal costs incurred in a particular year exceeds the recipient-of-the-support-payment's income for the same year, it is possible that such excess would create a non-capital loss. This non-capital loss can then be carried back or forward to offset income in other years in accordance with paragraph 111(1)(a) of the Income Tax Act. For more information on the non-capital loss carry over, please refer to Interpretation Bulletin IT-232R3, Losses - Their Deductibility in the Loss Year or in Other Year, dated July 4, 1997.
These legal expenses should continue to be deducted on line 232 of your personal income tax return as indicated in CRA Pamphlet P102, Support Payments. If you are in the unusual position of creating a non-capital loss using these deductible legal fees, you should specifically communicate your particular circumstances when filing your personal income tax return so that an adjustment can be made to the non-capital loss calculation for the year.
We trust our comments will be of assistance to you.
Yours truly,
Nerill Thomas-Wilkinson
A/Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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