Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether the new or old child support rules apply in respect of the child support payable under a particular court order (the "Order"). The Order stipulates that part of the monthly child support payments are to be made on a tax-free basis.
Position TAKEN:
The full amount of the monthly child support payments are subject to the old rules and, as such, are deductible to the payer and are required to be included in the recipient's income.
Reasons FOR POSITION TAKEN:
The Order does not have a "commencement day". That is, the Order was made before May 1997, and none of subparagraphs (b)(i) to (iv) of the definition of "commencement day", in subsection 56.1(4), applies. As regards the stipulation in the Order that part of the monthly child support payments are to be made "on a tax-free basis", it is our view that such tax consequences do not arise merely because a court order has so stipulated, but rather because the payments meet the criteria for exclusion from income and non-deduction set out in the relevant provisions of the Act.
XXXXXXXXXX 2000-001320
M. Azzi
May 29, 2000
Dear Sir:
Re: Child Support
This is in reply to your letter of March 10, 2000, regarding the tax treatment of child support payable under a particular court order (the "Order").
We understand that the Order was made by the Ontario Court (Provincial Division) on XXXXXXXXXX. Section 5 of the Order states "XXXXXXXXXX". You inquire whether the new or old child support rules apply in respect of the child support payable under the Order. You further specify that the parties have not made any joint election for the new child support rules to apply.
As you know, the basic thrust of the new child support provisions is to eliminate both the requirement to include child support in the custodial or recipient parent's income and the deduction available to payers of child support. That is, in general terms, child support amounts payable and receivable pursuant to a written agreement or court order on or after its "commencement day", as defined in subsection 56.1(4) of the Income Tax Act (the "Act"), are subject to the new rules and, as such, are not deductible by the payer and are not required to be included in the income of the recipient. Child support payments made pursuant to an agreement or order that has no "commencement day" will, generally, be subject to the old rules.
Paragraph (a) of the definition of "commencement day" states that an agreement or order made after April 1997 will have a "commencement day" on the day the agreement or order is made. However, by virtue of paragraph (b) of the definition of "commencement day", an agreement or order made before May 1997 will also have a "commencement day", and fall under the new rules, if:
(i) the parties both sign and file an election with the Canada Customs and Revenue Agency agreeing that the new tax rules will apply to the existing agreement or order as of a specified date (no earlier than May 1, 1997),
(ii) the agreement or order is varied after April 1997 to change the child support amounts payable to the recipient,
(iii) another agreement or order is made after April 1997 and the effect of the subsequent agreement or order is to change the total child support amounts payable to the recipient by the payer, or
(iv) the agreement or order specifically provides that the new tax rules will apply as of a specific date (i.e., the agreement or order, or any variation thereof, specifies a commencement day for purposes of the Act, no earlier than May 1, 1997).
As the Order, in the above situation, was made before May 1997 and, based on the information provided, it does not appear that any of (i) to (iv) above applies, in our view, the Order does not have a "commencement day" and, accordingly, does not fall under the new rules. As a result, the full amount of the monthly child support payments of $XXXXXXXXXX are subject to the old rules and, as such, are deductible to the payer and are required to be included in the recipient's income.
As regards the stipulation in the Order that part of the monthly child support payments are to be made "on a tax-free basis", it is our view that such tax consequences do not arise merely because a court order has so stipulated, but rather because the payments meet the criteria for exclusion from income and non-deduction set out in the relevant provisions of the Act. Since, as explained above, the Order does not have a "commencement day" as defined in subsection 56.1(4) of the Act, the child support amounts payable and receivable under the Order cannot fall under the new child support rules.
In closing, we would also note that where (iv) above applies in a particular situation, by virtue of paragraphs 56(1)(b) and 60(b) and the definition of "child support amount" in subsection 56.1(4) of the Act, all child support amounts payable and receivable under the agreement or order on or after the specified "commencement day" (in respect of a period beginning on or after that day) would fall under the new rules. That is, the entire child support amount would fall under the new rules, such that the agreement or order cannot stipulate that there is a commencement day (i.e., that the new rules will apply) for only part of the child support amounts payable and receivable thereunder.
We trust that these comments will be of assistance.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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