" Mr. Grenon is the payor of child support, not the recipient. The leading case on the deductibility of legal fees relating to child support payments is the Federal Court of Appeal decision in Nadeau v. The Queen. The Court made it clear at paragraph 18 of that decision that “expenses incurred by the payor of support (either to prevent it from being established or increased, or to decrease or terminate it) cannot be considered to have been incurred for the purpose of earning income, and the courts have never recognized any right to the deduction of these expenditures”.
" There is no provision in the Act that specifically permits the deduction of legal fees by recipients of child support. The justification for the deduction of these fees is based on the idea that such fees are amounts laid out to earn income from property. ... I am bound by this reasoning.
" Nadeau did not address the question of whether legal fees expended to establish child support payments were deductible. While one might normally expect that amounts laid out to create a right to income would be treated as being on capital account, it has been broadly accepted by this Court for almost 20 years that legal fees incurred by a recipient of child support payments in order to establish that support are deductible. The reason for this is that the right to child support has been found to be a pre-existing right. Thus, legal fees paid to establish the amount of child support have been considered to have been spent to enforce the right to the income rather than to create it and thus have been found to be on income account rather than capital account.
" Based on the foregoing, the difference in the treatment of payors and recipients of child support payments in respect of the deduction of legal fees relating to establishing child support payments lies solely in the fact that recipients of child support have a source of property income in the form of their right to child support payments and payors do not. The gender of the payor and the recipient have nothing to do with the determination of deductibility. The distinction between people who do and do not earn income from property is commonplace under the Act. For example, a residential landlord may deduct the property taxes, mortgage interest and utilities that she pays in respect of her rental property, but a simple homeowner who resides in his own property may not."
The reasons in this case are somewhat unusual in that Justice Graham adds remarks about the fairness of the system, suggesting that he favors the taxpayer's position but could not, based on the existing law, correct the unfairness he sees. He gives a fine explanation of the unfairness of the system and why Parliament should change the rules.
" I have spent a great deal of time considering the issues raised in this Appeal. I would like to take this opportunity to express some concerns that I have about the current state of the law. In my view, there are serious inequities that can arise when child support recipients are permitted to deduct the legal fees that they have laid out to establish child support payments and child support payors are not permitted the same deduction. I feel that those inequities are aching to be addressed by Parliament. Please note that the following comments relate only to legal fees laid out to establish child support, not those laid out to enforce arrears of child support.
" Regardless of whether the recipient has income from property or not, I struggle to see how, in the foregoing examples, it is acceptable from a public policy point of view to allow the recipient to deduct his or her legal fees while denying that deduction to the payor. Both parties are in court fighting about the exact same issues. What policy objective could possibly justify this outcome? The objective cannot be to give a financial break to the party with the greater financial need because in Example “A” the parent with the higher income receives the deduction. The objective cannot be to ensure the financial security of the children because the children in each example would benefit more from having both parents receive the deduction. The objective cannot be to reward the party who is successful in court because in Example “C” both parents have succeeded in increasing their custodial access from the 25% offered by the other parent to the 50% they received in court yet the mother is not permitted to deduct her legal fees. The objective cannot be to ensure access to justice because the subsidy is given to one parent and denied to the other regardless of their individual financial resources (e.g. in Example “C” above, the father receives the subsidy whether his income is $4,000, $49,000 or $499,000 and the mother is denied it whether her income is $5,000, $50,000 or $500,000).
" In my view, the problem with the current system arises, to a large extent, because there is an unfortunate tendency to examine this issue using the classic “deadbeat dad” stereotype. If that stereotype is used, then there does not appear to be a problem with the system. The stereotypical “deadbeat dad” is considerably financially better off than the mother, wants little or no custodial access and is seeking to keep his child support payments as low as possible. In this situation, it is easy to argue that giving the deduction to the mother achieves the above policy goals: the mother is the party with the greater need; the children are better off if the mother is subsidized in her fight to establish a high level of child support and the father is not subsidized in his fight to keep his child support payments low; the mother is the successful party in court; and, without the deduction, the mother may not be able to afford access to justice.
" However, tax policy should not be driven by stereotypes. The modern reality is that more and more parents fall into Example “C”. The tax system should, in my view, do a better job of reflecting that reality.
" Justice Woods’ decision in Trignani v. The Queen and Justice Angers’ decision in Mercier v. The Queen show that it may be possible for a payor in the above examples to obtain a deduction if he or she has a claim for child support that is “bona fide, not frivolous, and [has] a reasonable prospect of success”. I applaud the ingenuity of Justices Woods and Angers in addressing the inequality in the system but I feel that payors of child support should not have to wait for a patchwork of relief to emerge from this Court one decision at a time. Taxpayers would be far better served by a well thought out global system that balances the various fiscal and social issues and addresses both the needs of the parents in my examples and the needs of the parents in the “deadbeat dad” scenario. This Court cannot possibly achieve such a global system on a case by case basis. It is my hope that Parliament will give serious consideration to establishing such a system."
See Grenon v. The Queen, 2014 TCC (Graham)