Introduction: The problem of deducting legal costs in the
Family law context
As Canadian tax lawyers, we have a very strong and
Specific tax law knowledge that has been specialized over years
Income tax practice, customers are sometimes surprised to find out
We have at least general knowledge of other areas of law. This is
because the Income Tax Act is so drafted
that almost all transactions, transfers, income, capital and
Windfalls are in some ways affected by the Income Tax Act. This means
As Canadian tax attorneys, we may be tax specialists, but so are we
often has to act as an "all-rounder" when it comes to it
to other areas of law.
One of the areas in which specialized tax knowledge a
One big difference in client outcomes is family law. while most
Family attorneys are aware that income taxes can be obtained from them
Work that focuses on the division of value, property and cash,
in most cases this is already part of the spouse
Receipts after taxes. On the other hand, future amounts earned and
Child support raises the problem of income taxes.
although the rules are often misunderstood by both families
Lawyers and accountants are supposed to be less complex than they actually are.
A simple example shows why appropriate tax advice can do this
ultimately lead to large savings in the family law context –
Something that can help whole families by shedding Canada
Revenue Agency's share of marital assets and income
move forward.
The deduction of legal costs to enforce a grant
Obligation
One of the most recent requests we've received from a family law
Colleague was in a question about the deduction of legal fees
the family law context. His understanding of the applicable income
The tax law was pretty solid but incomplete. This resulted in a constant
Disputes with accountants from clients who refused to: a
Deduction from these clients' tax returns for legal costs
to enforce a spouse support obligation. Legal fees related to
The enforcement of a child support obligation or a lump sum payment are
commonly known as deductible, but the real uncertainty is with
in relation to spousal support amounts.
According to the Income Tax Act, the spouse support amounts are
normally deductible by the paying spouse and into the
Income of the payee's spouse. From a child benefit perspective, it is
normally wouldn't make sense that a source of income isn't
an "income" would be taxable for the payee
and thus legal costs for security could be deductible. However,
Section 248 [1] of the Tax Act saves this by classifying the child
Support payments as a kind of "exempt income" that has
the effect of removing income itself from a taxpayer's net
Income calculation, but still allows a deduction in accordance with
the other provisions of the Tax Act.
On the other hand, there is some confusion related to spousal support payments. Usually a lump sum
Payments to spouses are not deductible by the debtor
as a breakdown of after-tax revenue when the
Union. The monthly payments for spouse support come from current and
current income, and they are therefore included in the payer
Spouse's tax return. There is no argument regarding that
Deductibility of legal costs to enforce payment of
these amounts because it is a simple connection that is in the
abstract.
How tax advice solves and improves the general problem
Spousal support amounts
The reason for the confusion as we explained to our lawyer
Colleague is that there is no specific statutory income tax law
Reference dealing with spousal support payments, their
Enforcement and the deductibility of legal fees for it.
The previous position of the rating agency was the legal fees
accrued to secure flat-rate spouse support payments
does not qualify for deduction under tax law. But over the last one
about fifteen years, the Tax Court of Canada, the Federal Court of
Appeal and the Supreme Court of Canada have clarified the law
in relation to these deductions.
In essence, the courts have turned to a typical income tax
Technique for solving the problem: characterization. In many cases,
Spouses become criminal in their payments and the payee's spouse is
forced to take the matter to court for an order to be issued
Payment and possibly other penalties. Once that's done, the result
is usually an order that requires a lump sum payment instead of
monthly support fees, whether retrospective or prospective. in the
typical income tax fashion, in these cases the courts have examined
the underlying nature of the lump sum payment and where possible
attributed to the enforcement of an earlier or future period
The courts have allowed the deduction of
associated enforcement costs based on the characterization as income
to the payee according to the general scheme described
about.
Pro Tax Tips – Why Tax Advice Can Help – Canadian Tax
Lawyer analysis
As experienced Canadian tax attorneys, the question arises
We often spend time and analysis on characterization. But
What does this mean for those involved in a family law?
Dispute?
A Canadian tax attorney as the seasoned tax advisor at
Our tax office can check the facts of your situation or
that of your family law clients and justify the
Characterization of legal costs as deductible. In tax law form
Matters, ie with specific legal advice from an experienced Canadian
Tax attorney, a family attorney can negotiate flat-rate settlements with
obvious and specific intention to characterize spouse support
Payments that are nominally due to regular support
Commitment or at least show why they are
distinguishable from a traditional flat-rate division of property
Kind of payment. The difference could mean savings in the thousands
$ US dollar worth of income tax deductions for tax on both spouses
returns.
If you are a taxpayer divorcing or have a family
Attorney who wants to maximize the value for your client in his
Call our top Canadian tax lawyers. We can work in one
Support role to ensure that you maximize savings in the process
most expensive times. Those who seek tax advice in advance
We will be surprised at the tax savings our office can provide
short or long term.
The content of this article is intended to provide a general overview
Guide to the subject. Expert advice should be obtained
about your particular circumstances.