Principal Issues: Why are legal fees incurred for child support deductible per paragraph 17 of IT-99R5 (Consolidated) - Legal and Accounting Fees?
Position: Position explained.
Reasons: We accepted that the Divorce Act or a provincial family statute creates a pre-existing right to support amounts with regard to the obligation of parents in respect of child support. .
2006-020847 XXXXXXXXXX Charles Rafuse 613-957-8967 November 27, 2006
Dear XXXXXXXXXX:
Re: Child Support Payments
This is in reply to your email of September 29, 2006, concerning the deductibility of legal fees incurred to establish child support orders. You have asked for clarification of paragraph 17 of IT-99R5 (Consolidated) - Legal and Accounting Fees.
Our Comments
Paragraph 17 of IT-99R5 indicates that, "Legal costs incurred in establishing the right to spousal support amounts, such as the costs of obtaining a divorce, a support order for spousal support under the Divorce Act or a separation agreement, are not deductible as these costs are on account of capital or are personal or living expenses. However, since children have a pre-existing right, arising from legislation, to support or maintenance, legal costs to obtain an order for child support are deductible." This position regarding the deductibility of legal fees to obtain child support was taken because we accepted that the Divorce Act or a provincial family statute creates a pre-existing right to support amounts with regard to the obligation of parents in respect of child support.
Following the decision in the case of Gallien v. The Queen, [2001] 2 CTC 2676, 2000 DTC 2514 (T.C.C. - Informal Procedure), the Canada Revenue Agency (CRA) reconsidered the above positions. As a result, we now consider legal costs incurred to obtain spousal support under the Divorce Act, or under the applicable provincial legislation in a separation agreement, to have been incurred to enforce a pre-existing right to support. Consequently, these costs are deductible pursuant to the comments in paragraph 18 of Interpretation Bulletin IT-99R5 (Consolidated). We also now accept that legal costs of seeking to obtain an increase in support or to make child support non-taxable under the Federal Child Support Guidelines are also deductible. This position is explained in Income Tax - Technical News No. 24 which can be found on the CRA website at http://www.cra-arc.gc.ca/E/pub/tp/itnews-24/itnews-24-e.html.
We trust this information is helpful.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch