Tax law is not particularly exciting, and even lawyers find the topic complex, nit-picky, and never ending. However, there are a few relatively straightforward tax rules and specific principles that separating and divorcing partners should be aware of.
One such principle is that legal fees that are paid to pursue child or spousal support are deductible from the recipient spouse’s income.
This concept is relatively straight forward. The Income Tax Act outlines that for the purposes of determining taxable income, a person can deduct legal and accounting or professional fees that are incurred while pursuing a claim for spousal or child support. Professional fees should be deducted during the year in which they are incurred. By deducting professional fees from total income, support recipient will receive reduced level of income tax liability. However, legal fees incurred by the payor spouse/partner are not deductible.
This tax principle is associated with some clarifications and exceptions:
- Child Support: Legal costs in connection with determining child support are always deductible, regardless of whether the proceeding takes place under the Ontario Family Law Act or the Divorce Act.
- Spousal Support – Family Law Act: Legal costs to quantify a spousal support entitlement, established under the Ontario Family Law Act, may be deducted from income.
- Spousal Support – Divorce Act: Legal costs to establish the entitlement to child or spousal support amounts under the Divorce Act are not
- In contrast, legal costs incurred to enforce a pre-existing right to either interim or permanent support are
Tax implications can be a complicated area. If you require help, speak to an experienced family law lawyer.