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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Individual A and Individual B (married on XXXXXXXXXX and have 2 children) entered into a separation agreement (the "Agreement") in XXXXXXXXXX . Under the Agreement Individual A was to provide child support ($XXXXXXXXXX of each month) to Individual B. During part of XXXXXXXXXX , Individual A was unable to pay the monthly support of $XXXXXXXXXX as a result of a change in his financial circumstances (inter alia, he was unemployed for a period of time). On XXXXXXXXXX , a court order was rendered (the "Order") under which Individual A was required to pay child support to Individual B in the amount of $XXXXXXXXXX (extraordinary expenses) a month ($XXXXXXXXXX for the year). The issue is whether the amount of $XXXXXXXXXX is deductible by Individual A under paragraph 60(b) of the Income Tax Act (the "Act") and required to be included in Individual B's income.
Position: Not deductible and not required to be included in income.
Reasons: Amounts payable on or after XXXXXXXXXX , for the period beginning on or after that date, are not deductible as there is a commencement day (paragraph a of the definition of "commencement day" in subsection 56.1(4) of the Act). The amount for the months of XXXXXXXXXX is non-deductible as indicated in paragraph 22 of IT-530.
November 16, 2001
Toronto West Tax HEADQUARTERS
Services Office M. Eisner
Julia Langille (613) 957-2138
Problem Resolution Program
2001-009608
Support Payments
This is in reply to your memorandum of August 3, 2001 concerning the above-noted subject. We also acknowledge our telephone conversation on September 10 (Eisner/Langille) in which we obtained some further clarification.
In the circumstances of your situation, XXXXXXXXXX ("Individual A") and
XXXXXXXXXX ("Individual B"), who were married on XXXXXXXXXX and have two children, began to live separate and apart from each other on XXXXXXXXXX. On XXXXXXXXXX, Individual A and Individual B entered into a separation agreement (the "Agreement"), which set out a number of terms concerning the separation. In the case of support, the Agreement provided that Individual A was to pay $XXXXXXXXXX a month to Individual B in child support (i.e., $XXXXXXXXXX of each month for each child).
During part of XXXXXXXXXX, Individual A was unable to pay the monthly support of $XXXXXXXXXX as a result of a change in his financial circumstances (inter alia, he was unemployed for a period of time). In that regard, it is noted that "Schedule A" (the "Schedule"), which was prepared by the Superior Court of Justice (Ontario) (the "Court") and set out the amounts that Individual A owed to Indvidual B, indicates that the bi-monthly support amounts of $XXXXXXXXXX ceased to be recorded after XXXXXXXXXX. On XXXXXXXXXX, the Court rendered a court order (the "Order") concerning the support he was required to pay in respect of the two children. Under the terms of the Order, commencing XXXXXXXXXX, Individual A is required to pay child support of $XXXXXXXXXX a month ($XXXXXXXXXX for the year) plus the fixed amount of $XXXXXXXXXX a month ($XXXXXXXXXX for the year) for extraordinary expenses of the children (i.e., extraordinary expenses of $XXXXXXXXXX per year of which Individual A's share is $XXXXXXXXXX Payments pursuant to the Order were made by Individual A to the Director Family Responsibility Office, who paid the related amounts to the person to whom they were owed (i.e., Individual B).
For the XXXXXXXXXX taxation year, an adjustment was made to Individual A's return by the CCRA. Pursuant to the adjustment, Individual A was allowed a deduction in the amount of $XXXXXXXXXX under paragraph 60(b) of the Income Tax Act (the "Act") and the same amount was included in Individual B's income under 56(1)(b) of the Act. You believe that the adjustment may have been in error. On the basis that the payments made under the Agreement were deductible by the payer and required to be included in the income of the recipient, you have also mentioned that for the purposes of determining whether there is a "commencement day", as defined in subsection 56.1(4) of the Act, with respect to the Order, a consideration is item XXXXXXXXXX of the Agreement which provides that there would be no change to the tax treatment of the child support unless (i) the parties mutually agree otherwise, or (ii) either Individual A or B applies to the Court to have the Child Support Guidelines apply after May 1, 1997.
With respect to the issue you have raised regarding item XXXXXXXXXX of the Agreement, it is our view that a term such as that summarized above is not determinative of the tax treatment of support payments. Rather, the relevant facts and information in relation to the requirements in the Act must be considered in determining the tax treatment of the payments made in XXXXXXXXXX which total $XXXXXXXXXX.
As you aware, a new regime in respect of child support (i.e., no deduction to the payer and no income inclusion to the recipient) applies to child support payments made pursuant to a written agreement or court order if the agreement or order has a "commencement day" as defined in subsection 56.1(4) of the Act. As indicated in paragraph 7 of Interpretation Bulletin IT-530, which sets out the CCRA's position on support payments, the commencement day of an order or agreement made after April 1997 is the day the order or agreement was made, subject to the deeming provisions in subsection 60.1(3) of the Act. As subsection 60.1(3) of the Act addresses the circumstances where payments had been made prior to the date of the Order (in the year of the Order or the preceding year), that subsection does not apply as, inter alia, the Schedule indicates that payments made in relation to the amount of $XXXXXXXXXX were only made subsequent to the date of the Order (see paragraph 24 of IT-530).
Accordingly, as the Order provides the obligation to pay child support, and is made after April 1997, its commencement day is the day it is made, XXXXXXXXXX , in accordance with paragraph (a) of the definition of "commencement day" in subsection 56.1(4) of the Act. As a result, child support amounts that became payable on or after XXXXXXXXXX, for a period beginning on or after this date (i.e., XXXXXXXXXX would not be deductible by Individual A by virtue of the formula in paragraph 60(b) of the Act.
In the case of the amount of $XXXXXXXXXX relating to the months of XXXXXXXXXX XXXXXXXXXX, it is our view that this amount is also not deductible by Individual A under paragraph 60(b) of the Act. This view is consistent with comments in paragraph 22 of Interpretation Bulletin IT-530, which indicates that a lump sum payment that a court order requires to be made in respect of a period prior to the date of the order does not qualify as an amount payable on a periodic basis.
As a result of the above comments, it follows that the amount of $XXXXXXXXXX is also not required to be included in Individual B's income under paragraph 56(1)(b) of the Act.
For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the legislation Access Database (LAD) on the CCRA's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (613) 957-0682. The severed copy will be sent to you for delivery to the client.
We trust that these comments will be of assistance.
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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