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:
Taxpayer incurs legal fees to enforce existing right to child support. Court orders child support payor to reimburse taxpayer's legal fees, but payor has not done so. Are the legal fees incurred by taxpayer deductible?
Position TAKEN:
Yes.
Reasons FOR POSITION TAKEN:
Consistent with paragraphs 4 and 18 of IT-99R5, the right to child support is a capital property. Legal fees to enforce an existing right to child support are incurred to earn property income and are deductible. Reimbursement or award of legal fees reduces the deduction if received in the year. Receipt in future years is taxable under subsection 9(1) of the Act.
July 6, 2000
Toronto Centre Tax Services Office HEADQUARTERS Problem Resolution Program T. Young 952-1506 Attention: Carole Laurin 2000-002658
Legal Fees for Child Support
This is in reply to your memo of March 22, 2000, wherein you requested our views on the deductibility of legal fees incurred to enforce a right to child support.
We understand that the taxpayer incurred legal fees of approximately $XXXXXXXXXX to enforce an existing court order for child support. The court ordered the taxpayer's former spouse to reimburse the taxpayer for her legal fees. However, the taxpayer's former spouse has yet to pay the child support or reimburse the legal fees.
Our Comments
As stated in paragraph 18 of IT-99R5, the right to child support is a capital property and any legal costs incurred to enforce pre-existing rights to either interim or permanent support amounts are deductible.
In the case of child support payments that are not taxable, the deduction is not denied by paragraph 18(1)(c) of the Income Tax Act (the "Act"). Paragraph 18(1)(c) denies a deduction for expenses incurred to earn "exempt income". However, the definition of "exempt income" in subsection 248(1) of the Act specifically excludes support amounts as defined in subsection 56.1(4) of the Act. This position has recently been confirmed in McColl v. the Queen [Docket: 2000-445(IT)I].
Paragraph 4 of IT-99R5 states that "... if the taxpayer is successful in a legal proceeding, the gross amount of the legal fees which are otherwise deductible must be reduced by any legal costs awarded by the court which are received by the taxpayer." (our emphasis) Therefore, in the case you describe, since the taxpayer has yet to receive any of the legal fees awarded by the court, her deduction for legal fees is not reduced by the award.
In our opinion, if in a future year, if the taxpayer receives a reimbursement of the legal fees, the amount reimbursed would be taxable under subsection 9(1) of the Act.
We trust that these comments will be of assistance.
for Director
Business and Publications Division
Income Tax Rulings Directorate
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