In the context of separation or divorce and the associated expenses, opportunities for tax deductions can be particularly valuable. While fees related to negotiations for separation, divorce, or custody cannot be deducted by either party, and child support payments are similarly non-deductible, spousal support payments are deductible by payers—and taxable to recipients. However, an opportunity for a tax deduction is also available to those on the receiving end of support payments: under Canada Revenue Agency (CRA) regulations, recipients are eligible to deduct certain legal and accounting fees incurred in the pursuit of support.
Which Fees Are Deductible?
On line 221, recipients can claim legal and accounting fees incurred to establish support amounts from:
- a current or former spouse,
- a current or former common-law partner, or
- a legal parent of the recipient’s child, where the support is payable under a court order.Recipients can also claim fees incurred to prevent support reductions, increase support amounts, and obtain overdue support. Moreover, on line 232, recipients can claim legal and accounting fees relating to appeals for child support payments to be made non-taxable. These fees are deductible regardless of the recipients’ success, provided their claims for support are not frivolous and appear reasonable.
Recipients cannot deduct fees incurred in the pursuit of payments that do not meet the CRA’s definition of support. Fees relating to the collection of a lump sum, for example, are not deductible because non-periodic payments do not qualify as support (with the exception of lump-sum payments compensating for periodic payments in arrears).
Additionally, in cases where recipients are awarded costs that include their associated legal and accounting fees, they may only deduct the net amount of fees. If the costs are awarded in a subsequent tax year and the recipient has already deducted his or her fees, the award then becomes taxable income for that year.
Receipts to Retain
The CRA may request supporting documents as evidence of fees paid. If you are planning to claim legal and accounting fees incurred in pursuit of support, request and retain receipts from your financial or legal professionals, such as an invoice containing proof of payment or a letter of attestation.
*Payments must qualify as support under CRA regulations.
If you would like to discuss your eligibility for tax deductions, or have any other financial concerns, please do not hesitate to get in touch.