BETWEEN:
and
____________________________________________________________________
Appeal heard on March 1, 2006, at Ottawa, Ontario.
Before: The Honourable Justice Lucie Lamarre
Appearances:
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 2003 taxation year is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant is entitled to deduct legal fees of $8,265.71 in computing his taxable income for the 2003 taxation year.
Signed at Ottawa, Canada, this 9th day of March 2006.
BETWEEN:
PAUL J. RABB,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
[1] This is an appeal against an assessment by the Minister of National Revenue ("Minister") refusing the appellant a deduction for legal fees in the amount of $8,265.71 for the 2003 taxation year.
[2] According to the appellant, those legal fees were incurred by him to establish his former spouse's income in order to determine the amount of child support she ought to pay him.
[3] It is not in dispute that the appellant has lived separate and apart from his former spouse since March 1, 1999. Pursuant to a separation agreement dated November 13, 2002 (Exhibit R-1), the appellant and his former spouse had split custody of the two children of the marriage. The older child was to maintain his primary residence with the former spouse while the younger child would maintain his primary residence with his father, the appellant. Pursuant to that agreement (section 4.3), the appellant was required to pay child support of $185 per month to his former spouse effective December 1, 2002. Although the agreement did not specify that the former spouse was required to pay child support to the appellant, it is not disputed that the amount of child support stated in the separation agreement is an off set amount. The appellant explained that his former spouse owed him child support for one child and that he owed her child support for the other child. As he had the higher income, he had to pay the difference between her child support payment and his, that is, the aforementioned amount of $185 per month.
[4] The appellant referred to the Federal Child Support Guidelines ("guidelines") established by the Governor General in Council, on the recommendation of the Minister of Justice, pursuant to section 26.1 of the Divorce Act. Section 8 of the guidelines states:
Split custody
8. Where each spouse has custody of one or more children, the amount of a child support order is the difference between the amount that each spouse would otherwise pay if a child support order were sought against each of the spouses.
[5] It can be inferred from the evidence and from the guidelines that each parent had to pay support to the other parent for the child of whom that other parent had custody. The legal fees incurred by the appellant were so incurred, at least in part, to find out, for the purpose of establishing the support she would have to pay him for the custody of one child, the income earned by his former spouse. That he had to pay more for the child of whom his former spouse had custody than she had to pay him for the other child does not change the fact that the legal fees were incurred for the purpose of receiving child support.
[6] In my view, the appellant's purpose in incurring the legal fees was in part to establish entitlement to support for one child. It is recognized that legal fees incurred for the purpose of establishing entitlement to support are deductible. Indeed, payment of such fees is considered an expenditure incurred in recovering an amount owing under a pre-existing right; that type of expenditure is a current expense and therefore deductible (see Donald v. R., [1999] 1 C.T.C. 2025 (TCC), at paragraph 7, decision by Judge Bonner; Nissim v. R., [1998] 4 C.T.C. 2496 (TCC), at paragraph 32, decision by Judge Bowman; and Nadeau v. R., [2004] 1 C.T.C. 293 (FCA), at paragraph 17).
[7] That the appellant had to pay more to his former spouse than she had to pay him and that the agreement only stated the net amount to be paid by the appellant pursuant to section 8 of the guidelines does not alter the fact, in my view, that part of the legal fees were incurred by the appellant to recover an amount owing under a pre-existing right, that is, support for the child of whom he had custody pursuant to the separation agreement.
[8] Exhibit A-2 shows that an amount of $8,265.71 in total represented legal fees incurred by the appellant with respect to his claim for child support.
[9] I therefore conclude that this amount is an expense that is deductible in the computation of the appellant's income.
[10] The appeal is allowed and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that the appellant is entitled to deduct legal fees of $8,265.71 in computing his taxable income for the 2003 taxation year.
Signed at Ottawa, Canada, this 9th day of March 2006.
"Lucie Lamarre"
Lamarre J.
COURT FILE NO.: 2005-2801(IT)I
STYLE OF CAUSE: PAUL J. RABB v. HER MAJESTY THE QUEEN
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: March 1, 2006
REASONS FOR JUDGMENT BY: The Honourable Justice Lucie Lamarre
DATE OF JUDGMENT: March 9, 2006
APPEARANCES:
|
For the Appellant: |
The Appellant himself |
|
Counsel for the Respondent: |
Frédéric Morand |
COUNSEL OF RECORD:
Firm:
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada