Q: I have been involved in a child custody and support court battle with my ex-wife for a couple of years. Because I have farming income, there’s been a dispute over how much I earn and how much I should pay, a dispute I recently won. Why can’t I deduct the legal fees for this on my income tax?A: The Canada Revenue Agency has maintained that paying spouses cannot deduct the legal fees incurred regarding a child support dispute. As you are fighting about paying, not receiving, you are not entitled to a deduction. The CRA prints its position in documents called Interpretation Bulletins, which are available to the public and designed to assist the public in meeting their tax obligations.However, this old position may now have to be changed. The Tax Court of Canada has decided that a paying parent can deduct legal fees incurred in a support dispute, at least sometimes.In the Trignani case, a man had joint custody of his children with his ex-wife. He was pursuing full custody and argued the child was spending the most time with him. However, because he earned more income, he was always paying at least some support to her for the children. He challenged the CRA position that his legal fees were non-deductible and won.In joint custody or shared parenting, the judge figures out what the gross annual income of each parent is and determines what each parent would pay if the other parent had full custody. The judge uses the Federal Child Support Guidelines.The judge then does an offset. If I pay my wife $500 monthly if she has custody and she paid me $200 monthly based on her income if I had custody, the net effect of shared custody is I have to pay her $300.The decision of madam justice Woods of the Tax Court was delivered in April of this year. She overturned the initial CRA ruling and allowed the man to claim all the fees he’d claimed on his tax return. The decision might have some limitations to joint custodians of children who are in the shared parenting, offset type of payment regime. However, the decision is also interesting given its potential to open the doors for deduction by all types of paying parents, who have child support orders directing them to pay their former spouse.You should have your lawyer review Trignani, compare it to your case and provide an opinion on whether you have a shot at succeeding in your quest for this deduction.
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