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: Under a post-April 1997 separation agreement, a taxpayer is required to pay to his wife child support of $XXXXXXXXXX per child per week for XXXXXXXXXX children until the child becomes 21 years of age. The separation agreement has been varied after April 1997 such that child support would be required to be paid until the child becomes 24 years of age. Would the post-April 1997 varied separation agreement have a commencement day?
Position: Yes.
Reasons: Where a pre-May 1997 agreement or order is varied after April 1997, to change the child support amounts payable to the recipient, the day on which the first payment of the varied amount is required to be made is the commencement day of the varied agreement or order.
February 3, 2000
St. Catharines TSO HEADQUARTERS
Jacqui Sherman G. Moore
Assistant Director, Client Services 952-1506
2000-000587
Child Support - Subsection 56.1(4) of the Income Tax Act
We are writing in reply to your correspondence of January 28, 2000, in which you asked for our opinion concerning whether a variation in a separation agreement would trigger a "commencement day" as defined in subsection 56.1(4) of the Income Tax Act (the "Act").
As we understand it, pursuant to a separation agreement dated XXXXXXXXXX, in general, XXXXXXXXXX is required to pay XXXXXXXXXX child support of $XXXXXXXXXX per child per week for XXXXXXXXXX children until the child becomes 21 years of age. You have not provided us with a copy of the post-April 1997 varied separation agreement; however, you have indicated that the separation agreement has been varied after April 1997 such that child support would be required to be paid by XXXXXXXXXX to XXXXXXXXXX until the child becomes 24 years of age. You are asking whether the separation agreement would have a commencement day.
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. Generally, the new rules apply to agreements or court orders made after April 1997. However, by virtue of the definition of "commencement day" in subsection 56.1(4) of the Act, the new rules apply to child support amounts paid under the terms of an agreement or order made before May 1997 if:
1. the parties both sign and file an election with the Department agreeing that the new tax rules will apply to the existing order or agreement after a specified date (no earlier than May 1, 1997),
2. the parties change the child support amounts payable to the recipient by amending the agreement or court order after April 1997,
3. 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
4. the order or agreement specifically provides that the new tax rules will apply after a specific date (no earlier than May 1, 1997).
However, revisions to increase or decrease child support amounts payable under a court order or agreement made before May 1997 as a consequence of automatic changes in child support amounts that are built into the order or agreement (e.g., cost-of-living increases) will not, in and by itself, cause an agreement or order to have been varied so as to trigger a commencement day.
Where a pre-May 1997 agreement or order is clear as to when child support for a particular child is to cease, the cessation of such payments in accordance with the date set out in the pre-May 1997 agreement or order would not generally trigger a "commencement day". Where a pre-May 1997 agreement or order is varied after April 1997, to change the child support amounts payable to the recipient, the day on which the first payment of the varied amount is required to be made is the commencement day of the varied agreement or order.
A review of the separation agreement dated XXXXXXXXXX, indicates that XXXXXXXXXX is required to pay XXXXXXXXXX child support of $XXXXXXXXXX per child per week for XXXXXXXXXX children until such time as the child ceases to reside full-time with the wife, the child becomes 18 years of age and ceases to be in full-time attendance at an educational institution, the child becomes 21 years of age, the child marries, the wife dies, the husband dies or the matrimonial home is sold (at which time the husband will pay child support to the wife of $XXXXXXXXXX per child per week). Paragraph 8 of the separation agreement indicates that the terms of paragraphs 3, 4 and 6 of the separation agreement are final unless a material change in circumstances takes place, in which case the provisions in those paragraphs of the agreement may be varied. You have not provided us with a copy of the post-April 1997 varied separation agreement so we are unable to provide you with definitive comments without the opportunity to review that document. However, you have indicated that the separation agreement has been varied after April 1997 such that child support would be required to be paid by the payer to the recipient until the child becomes 24 years of age.
Accordingly, our initial reaction, without the benefit of having reviewed the post-April 1997 document, is that a variation of the separation agreement requiring XXXXXXXXXX to continue making child support payments until such time as each child reaches the age of 24 instead of 21 years of age would trigger a "commencement day". In our view, subparagraph (b)(ii) of the definition of "commencement day" in subsection 56.1(4) of the Act would apply since the amount of child support amounts payable to the recipient has been changed by a post-April 1997 variation of a separation agreement. The "commencement day" of the varied separation agreement would be the day on which the first payment of the varied amount is required to be made. In our view, the day after the oldest of the XXXXXXXXXX children turns 21 years of age, the payer would have ceased paying $XXXXXXXXXX per week for that child and the total weekly child support would have decreased on that day from $XXXXXXXXXX to $XXXXXXXXXX. Because of the variation to the separation agreement, instead of weekly child support amounts payable of $XXXXXXXXXX, the child supports amount payable would be increased from $XXXXXXXXXX to $XXXXXXXXXX . Such an increase in child support amounts payable as a result of a post-April 1997 variation in a separation agreement would, in our view, trigger a "commencement day" as defined in subsection 56.1(4) of the Act, on the day the first $XXXXXXXXXX payment would be made after the oldest child turns 21 years of age, and the child support amounts payable and receivable of $XXXXXXXXXX per week after the commencement day would be subject to the new rules. The result would be that the child support amounts payable or receivable pursuant to the order on or after its commencement day would not be deductible for the payer or taxable to the recipient, as the case may be.
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 Agency'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.
J. Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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