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, based on Larsson (97 DTC 5425), Mr. and Mrs. X can amend their 1994 separation agreement (the "Agreement") to have subsections 56.1(2) and 60.1(2) apply retroactively to the date of the Agreement, in order to avoid triggering the application of the new child support rules, so that Mr. X can claim a deduction, in respect of specific expenses provided for in the Agreement for the children, as "support amounts" under paragraph 60(b). Mr. and Mrs. X were U.S resident (and non-residents of Canada) at the time of entering into the Agreement, and Mr. X (only) has since become a resident of Canada.
Position TAKEN:
Should Mr. and Mrs. X amend the Agreement to have subsections 56.1(2) and 60.1(2) apply, so that the specific expenses qualify as support amounts, in our view, the new child support rules would be triggered by virtue of subparagraph (b)(ii) of the definition of "commencement day" in subsection 56.1(4).
Reasons FOR POSITION TAKEN:
There is significant and growing jurisprudence on the issue of the validity of retroactive amendments and rectification, and this issue is, to a great extent, unclear at common law. The case of Larsson is distinguishable from the above situation, particularly in that Larsson involved a retroactive amendment by an order of a court and, in addition, that case was not considered in the context of whether the amendment would trigger the application of the new child support rules. It is also noted that one of the criteria generally considered by the courts, in determining whether to grant a retroactive rectification, is the intention of the parties at the time of the original agreement or order and, in the above situation, it does not appear that the original intention would have been to tax Mrs. X on the specific expenses while allowing Mr. X to claim a deduction for these amounts. In addition, the courts have been reluctant to sanction retroactive changes which were made through agreement between the parties, rather than through an order of a court (see Sussex Square Apartments Limited, 99 DTC 443).
XXXXXXXXXX 2000-001149
M. Azzi
Attention: XXXXXXXXXX
June 8, 2000
Dear Sirs:
Re: Child Support - Subsections 56.1(2) and 60.1(2) of the Income Tax Act (the "Act")
This is in reply to your letter of February 28, 2000, requesting our views on the application of the above-noted provisions in a particular situation.
We understand that Mr. and Mrs. X were U.S. residents (and non-residents of Canada) at the time of breakdown of their marriage and the signing of a written separation agreement (the "Agreement") in 1994. You indicate that the Agreement provides for, among other things, monthly child support to be paid by Mr. X to Mrs. X, and that Mr. X would pay all of the children's medical and education expenses (hereinafter referred to as the "Specified Expenses"). Mrs. X has custody of the children and still resides in the U.S. with the children; however, Mr. X has moved to Canada and become a resident of Canada. You indicate that the Agreement contains no reference to subsections 56.1(2) and 60.1(2) of the Act, as the Agreement was drafted at a time when both individuals were U.S. citizens and residents and no such reference was necessary. As the amounts paid for the Specified Expenses do not currently qualify as a "support amount" as defined in subsection 56.1(4) of the Act, Mr. and Mrs. X are considering amending the Agreement in order to add a reference to subsections 56.1(2) and 60.1(2) of the Act. You enquire whether, based on Larsson (97 DTC 5425), Mr. and Mrs. X can amend the Agreement to have subsections 56.1(2) and 60.1(2) of the Act apply retroactively to the date of the Agreement, in order to avoid triggering the application of the new child support rules, so that Mr. X can claim a deduction, in respect of the Specified Expenses, as "support amounts" under paragraph 60(b) of the Act.
Written confirmation of the tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax services office. However, we are prepared to offer the following general comments.
There is significant and growing jurisprudence on the issue of the validity of retroactive amendments and rectification, and this issue is, to a great extent, unclear at common law. The case of Larsson is distinguishable from the above situation, particularly in that Larsson involved a retroactive amendment by an order of a court and, in addition, that case was not considered in the context of whether the amendment would trigger the application of the new child support rules. We would also note that one of the criteria generally considered by the courts, in determining whether to grant a retroactive rectification, is the intention of the parties at the time of the original agreement or order and, in the above situation, it does not appear that the original intention would have been to tax Mrs. X on the Specified Expenses while allowing Mr. X to claim a deduction for these amounts. In addition, the courts have been reluctant to sanction retroactive changes which were made through agreement between the parties, rather than through an order of a court (see Sussex Square Apartments Limited, 99 DTC 443). Accordingly, should Mr. and Mrs. X amend the Agreement to have subsections 56.1(2) and 60.1(2) of the Act apply as described above, so that the Specified Expenses qualify as support amounts, in our view, the new child support rules would be triggered by virtue of subparagraph (b)(ii) of the definition of "commencement day" in subsection 56.1(4) of the Act.
Please note that role of the Canada Customs and Revenue Agency is to administer and enforce the Act as passed by Parliament. The concerns raised in your letter, regarding tax policy and amendments to the Act, are the responsibility of the Department of Finance. Should you wish to pursue these concerns further, you may contact the Tax Policy Branch of the Department of Finance by writing to L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario K1A 0G5.
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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