Principal Issues: [TaxInterpretations translation] Are legal fees incurred by common-law spouses to negotiate an agreement to pay support to one of the spouses deductible?
Position: No.
Reasons: In Quebec, common-law spouses have no recourse against each other for support. Legal fees to establish an entitlement to support for one of the spouses are not deductible.
FEDERAL TAX ROUNDTABLE
APFF CONFERENCE 2010
Question 45
Legal expenses incurred by common-law partners
Mr. X and Ms. X were common-law partners and residents of Quebec. Mr. X and Ms. X decided to separate.
Although there is no legislation providing for the payment of support between common-law partners in the event of separation, Mr. X and Ms. X negotiated an agreement under which Mr. X will pay support to Ms. X (the "Agreement"). The Agreement between Mr. X and Ms. X was approved by the Court.
Questions to the CRA
a) Are the legal costs incurred by Mr. X for the negotiation and conclusion of the Agreement deductible?
b) Are the legal fees incurred by Ms. X for the negotiation and conclusion of the Agreement deductible?
CRA Response
In Quebec, unlike married or civil union couples, common-law spouses have no recourse against each other for support. However, spouses in a common-law relationship can settle various aspects of their life together or any eventual break-up by means of a contract that may be entered into before, during or at the end of their relationship. That contract is known as either a common-law relationship contract, a cohabitation contract or a separation agreement.
Of course, if one or more children are born of a common-law relationship, support will be granted for the needs of the children as if the couple had been married or in a civil union. However, that support is granted only to cover the needs of the children.
In paragraph 18 of Interpretation Bulletin IT-99R5-CONSOLID, Legal and Accounting Fees (the "Bulletin"), the CRA confirms that legal costs incurred to enforce pre-existing rights to interim or permanent support amounts are deductible. A pre-existing right to a support amount can arise from a written agreement, a court order or legislation such as sections 11 and 15.1 of the Divorce Act with respect to child support, or Part III of the Family Law Act of Ontario. As a result of the decision in Gallien v. The Queen, [2001] 2 CTC 2676, 2000 DTC 2514 (T.C.C., Informal Procedure), legal costs incurred to obtain spousal support pursuant to the Divorce Act, or under provincial legislation in the case of a separation agreement, are also deductible.
However, in the case of common-law spouses, the legal costs incurred to negotiate either a common-law relationship contract, a cohabitation contract or a separation agreement are for the establishment and negotiation of an entitlement to support. At that level, it is the CRA's position that the legal costs would not be deductible to either Mr. X or Ms. X.
François Bordeleau
(613) 957-8972
October 8, 2010
2010-037364