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:
As a result of a marital breakdown that occurred some time prior to XXXXXXXXXX , Individual A was living separate and apart from Individual B. Individual A, who lives in XXXXXXXXXX , and Individual B, who lives in Ontario, are the natural parents of a child (the “Child”). The Child was removed from Individual B’s home in XXXXXXXXXX due to emotional and physical abuse. In XXXXXXXXXX , the Court granted custody of the Child to Individual A and Individual C (Individual C is Individual A’s sister who lives in Ontario) and the Court granted daily care and control of the Child to Individual C. Individual A paid maintenance to Individual C. In order for the maintenance to be deductible under paragraph 60(b) of the Act, the Child must be regarded as being the “child” of Individual C pursuant to paragraph 252(1)(b) of the Act. Can this requirement be considered to have been satisfied?
Position: Yes
Reasons:
Under paragraph 252(1)(b) of the Act, a child of a taxpayer includes an individual who is wholly dependent upon the taxpayer for support and is under the custody and control, in law or in fact, of the taxpayer. The facts of the case indicated that Child could be considered to be a “child” of Individual C during the time that maintenance payments were being made to her.
April 20, 1999
XXXXXXXXXX Tax Services Office HEADQUARTERS
Client Services XXXXXXXXXX M. Eisner
XXXXXXXXXX (613) 957-2138
990270
Deductibility of Child Support Payments
As discussed with you in our telephone conversation on March 15, 1999 (Eisner/XXXXXXXXXX), we are replying to your memorandum of February 1, 1999 concerning a submission made to your office by XXXXXXXXXX relating to the above-noted subject.
In the circumstances of your situation, XXXXXXXXXX (the “Child”) was born in XXXXXXXXXX and is, we assume, the natural child of XXXXXXXXXX (“Individual A”). As a result of a marital breakdown that occurred some time prior to XXXXXXXXXX, Individual A was living separate and apart from XXXXXXXXXX (“Individual B”) who is the Child’s mother. The Child was removed from Individual B’s home in XXXXXXXXXX due to emotional and physical abuse by her mother and her stepfather. In XXXXXXXXXX, Individual A attended court with his sister, XXXXXXXXXX (“Individual C”) for the purposes of obtaining custody of the Child until such time that the Child could move to XXXXXXXXXX to live with her father (i.e., Individual A) on a full-time basis. Pursuant to a court order (the “Order”) issued by the Ontario Court (General Division) (the “Court”) on XXXXXXXXXX, custody of the child was awarded to Individual A and Individual C with daily care and control awarded to Individual C. Individual A was granted reasonable access to the Child and Individual B was granted access at the discretion of Individual C. Commencing XXXXXXXXXX, Individual A and Individual B were, respectively, required to pay support in respect of the Child in the amount of $XXXXXXXXXX and the amount of $XXXXXXXXXX. The support payments were indexed and were required to be paid to the Director of the Family Support Plan who would, in turn, pay them to Individual C. Individual C was to arrange medical coverage for the Child, if possible, through her spouse’s plan and any medical or dental expenses not covered by the plan were to be shared equally by Individual A and Individual B.
From XXXXXXXXXX to XXXXXXXXXX, Individual A paid $XXXXXXXXXX (the “Maintenance”) in support of the Child to Individual C. Individual A ceased to make further support payments in respect of the Child as the Child moved to XXXXXXXXXX in XXXXXXXXXX to live with him. The issue is whether Individual A is entitled to deduct the Maintenance under paragraphs 60(b) (1997) and (c) (1996) of the Income Tax Act (the “Act”). In connection with this issue, Individual A has indicated that Individual C reported the Maintenance as income in 1996 and 1997 under the relevant provisions of the Act.
As you are aware, new child support rules were enacted for 1997 and subsequent years. Under the new rules, child support payments made pursuant to a written agreement or court order on or after its “commencement day”, as defined in subsection 56.1(4) of the Act, are subject to the new rules (i.e., non-taxable/non-deductible). Child support payments made pursuant to an agreement or court order before its “commencement day”, or made pursuant to an agreement or order that does not have a “commencement day”, will be subject to the old rules. The Department’s general position on the new child support rules is set out in Interpretation Bulletin IT-530 “Support Payments”. On the basis of the information supplied to us, it is our view that the Order does not have a “commencement day”. With respect to the Maintenance paid prior to 1997, the Department’s general position is set out in Interpretation Bulletin IT-118R3 “Alimony and Maintenance”.
In order for the Maintenance paid in 1997 to be deductible under paragraph 60(b) of the Act, the Maintenance must, among other things, satisfy the definition of “support amount” in subsection 56.1(4) of the Act. In relation to your situation, one of the requirements of a “support amount” is that the amount is payable as an allowance on a periodic basis for the maintenance of the recipient, children of the recipient or both (We have assumed Individual A and Individual B are the Child’s natural parents). This same requirement exists with respect to the portion of the Maintenance that was paid in 1996 in that paragraph 60(c) of the Act, as it applies to that year, refers to payments made by a natural parent to “children of the recipient”. Accordingly, in order for the Maintenance to satisfy the requirement, the Child must be a “child” of Individual C.
Pursuant to paragraph 252(1)(b) of the Act, a child of a taxpayer includes an individual who is wholly dependent upon the taxpayer for support and is under the custody and control, in law or in fact, of the taxpayer. Custody involves the right of determining the residence, protection, care (physical and moral), education, and religion of a minor child. On the basis of the information set out above in respect of the Order, and since it appears that the Child’s normal place of residence was with Individual C for about 18 months, it is our view that Individual C can be regarded throughout the 18 months as having legal custody and control of the Child. It is a question of fact whether the Child was “wholly dependent” on Individual C for support. However, it seems to us that the requirement can be considered to have been satisfied. The fact that Individuals A and B paid support to Individual C of $XXXXXXXXXX a month would not, in and by itself, preclude the Child from being considered “wholly dependent” on Individual C. In addition, since Individual C is the only person who was granted both custody and control of the Child, it appears that the Child was wholly dependent upon Individual C. On the basis of the information available, it would follow that the Child could be regarded as being a “child” of Individual C from XXXXXXXXXX until XXXXXXXXXX.
In summary, it is our view that the Maintenance paid by Individual A to Individual C in 1997 satisfies the definition of “support amount” and “child support amount” in subsection 56.1(4) of the Act (see paragraph 4 of IT-530). Since there is no “commencement day”, the Maintenance paid in 1997 is deductible under paragraph 60(b) of the Act. It is also our view that the amounts of Maintenance paid in 1996 are deductible pursuant to paragraph 60(c) of the Act as this provision reads with respect to that taxation year. If you require further assistance, we would be pleased to provide our views.
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 Department’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.
Jim Wilson
Section Chief
Business, Property & Employment Section II
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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