Legal Fees and Income: To Deduct or Not to Deduct is that Really a Question?

A bedeviling question for some family law practioners, is how to determine whether and when family law legal fees should be deducted from a person’s income for support purposes as a “carrying charge”?  Under the Income Tax Act, a support recipient can deduct the legal fees s/he incurred to recover, establish, or increase support as “carrying charges”; the support payor cannot do the same. The primary focus of this article is whether legal fees will be deducted, and when they will be deducted.

For income tax purposes, legal fees incurred to obtain or increase support payments are deductible as carrying charges in the year of payment and are claimed on line 22100 of the Income Tax Return (See Mader v. the Queen, 2019 TCC 289 (T.C.C.), at para. 29; Grenon v. R., 2014 TCC 265 (T.C.C.)). The rationale for this approach is that a right of support falls within the definition of “property” pursuant to section 248 of the Income Tax Act, and that such fees are incurred to earn income from property (Grenon; S.B. v. V.H., 2019 CarswellOnt 17012 (O.C.J.), at para. 359). These fees may be deductible for tax purposes even, at the time that they are claimed, it is unknown whether the support claim will ultimately be successful.

Section 8 of Schedule III of the Child Support Guidelines (hereafter referred to as “Guidelines”) provides that in determining income for child support purposes, “the court must also deduct from a party’s Guidelines’ income the party’s carrying charges and interest expenses that are paid by the spouse and that would be deductible under the Income Tax Act.”