Legal fees are tax deductible in family law cases when they result in either child or periodic spousal support. However, only the part of your case that relates to support is tax deductible.
For example, if your case involves obtaining a divorce, child custody, and child support, they only cost deductible will related to the child support. In order to claim a deduction, you must establish a right to support. This is normally proven by a court order, or with a written agreement.
Generally speaking, you are also allowed to deduct legal fees required to vary child or spousal support. Fees related to enforcing a support order are also deductible. If your ex makes an application to change or end spousal support, these fees may be deductible. However, the rules can become complicated, especially if your ex is successful in ending support payments.
No two cases are identical, so it is important to get advice from an accountant.
Usually, legal fees are tax deductible when you obtain an income related benefit. Every case is different, and you will need specific advice for your situation. When you speak to an accountant, they will likely request proof of the legal fees. This is normally done in the form of a letter from your lawyer.
This letter from your lawyer, should include the following:
- Indicate the total amount billed,
- What services were provided,
- What amount related to child support, and
- What amount related to spousal support.
The tax implication of any legal dispute must be carefully considered. This analysis is not limited to the question of whether legal fees are tax deductible. Transfer of assets and support payments may have significant tax implications. Always seek the advice of an accountant and advise your lawyer of any tax concerns.
For more information on whether legal fees are tax deductible, consult with the CRA (Canada Revenue Agency).
Key words: legal fees are tax deductible
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