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: A pre-May 1997 Marriage Contract indicates that two individuals are contemplating living separate and apart from each other in the future. The Marriage Contract provides that in the event the parties separate, the payer will pay his spouse child support and spousal support beginning on the first day of the month following their separation. The taxpayers subsequently separated but there was no written separation agreement between the parties after they separated. A post-April 1997 Corollary Relief Judgment (hereafter referred to as the "court order") states that the Marriage Contract as it relates to custody, access, spousal support and child support is declared void and that the payer is required to pay his spouse child support and spousal support commencing XXXXXXXXXX .
Does the 1997 court order provide that the Marriage Contract is void retroactively such that the recipient is not required to include in her income any child support and spousal support received pursuant to the Marriage Contract?
Position: No
Reasons: Based on the wording of the 1997 court order, it does not apply retroactively to eliminate the requirement under the Marriage Contract that child support and spousal support were payable for the XXXXXXXXXX years.
March 21, 2000
Enquiries and Adjustments Division HEADQUARTERS
St. John's Taxation Centre G. Moore
952-1506
Attention: Gail Murphy
Technical Advisor
2000-001222
Child Support Payments - Definition of
"Commencement Day" in Subsection 56.1(4)
We are writing in reply to your memo of March 7, 2000, in which you asked for our opinion concerning whether there is a commencement day (as defined in subsection 56.1(4) of the I (the "Act")) for the Corollary Relief Judgment dated XXXXXXXXXX, between XXXXXXXXXX.
As we understand the situation, a Marriage Contract dated XXXXXXXXXX, between the above-mentioned individuals, indicates that due to unhappy differences that have arisen between the parties, they are contemplating that they may separate and live apart from each other although neither party desires a separation at that time. The Marriage Contract provides that in the event the parties separate, XXXXXXXXXX will pay XXXXXXXXXX child support equal to XXXXXXXXXX of his annual total income which would not be less than $XXXXXXXXXX per month, beginning on the first day of the month following their separation. The Marriage Contract also orders that the amount of child support would be adjusted upward or downward in accordance with any increase or decrease in the Consumers Price Index for the immediately preceding 12-month period. You indicate in your correspondence that the taxpayers separated on XXXXXXXXXX. It is our understanding that there was no written separation agreement between the parties after they separated.
The Corollary Relief Judgment (hereafter referred to as the "court order") dated XXXXXXXXXX, states that the Marriage Contract dated XXXXXXXXXX, as it relates to custody, access, spousal support and child support is declared void. In addition, the court order provides that XXXXXXXXXX is to pay child support of $XXXXXXXXXX per month commencing XXXXXXXXXX, and spousal support of $XXXXXXXXXX per month commencing XXXXXXXXXX. The court order also provides that as of XXXXXXXXXX, there are no arrears for spousal or child support. Paragraph 9 of the court order provides that the provisions of the Marriage Contract as they relate to the division of property shall continue in full force and effect.
You have indicated that the recipient of the child and spousal support has requested an amendment to her XXXXXXXXXX income tax returns to delete support payments of XXXXXXXXXX, respectively, on the basis that the Marriage Contract is now "void" and is replaced by the court order dated XXXXXXXXXX. The payer of the child and spousal support has claimed a deduction on his XXXXXXXXXX income tax returns of XXXXXXXXXX, respectively. The recipient's solicitor has indicated in a letter of February 8, 1999, that the Marriage Contract was invalid from the beginning and that since the contract never existed in law with respect to matters of custody, child support and spousal support, the recipient does not have to report any child or spousal support payments made pursuant to the Marriage Contract on her XXXXXXXXXX income tax returns.
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).
For a court order made after April 1997, the "commencement day" would be the day the court order is made. Based on a review of the information you have submitted to us, it is our view that the court order dated XXXXXXXXXX, is an order "made" after April 1997. Therefore paragraph (a) of the definition of "commencement day" in subsection 56.1(4) of the Act would apply and the court order would have a "commencement day" of XXXXXXXXXX. Accordingly, the new child support rules apply to child support amounts payable or receivable, as the case may be, under the court order on or after its commencement day.
Under the post-April 1997 court order, commencing XXXXXXXXXX is required to pay XXXXXXXXXX child support of $XXXXXXXXXX per month and spousal support of $XXXXXXXXXX per month. Pursuant to the definition of "child support amount" in subsection 56.1(4) of the Act, a "child support amount" is any support amount that is not identified in the agreement or order under which it is receivable as being solely for the support of a recipient who is a spouse or former spouse of the payer or who is a parent of a child of whom the payer is a natural parent. As the spousal support payable of $XXXXXXXXXX per month is identified in the 1997 court order as such, any spousal support payments made pursuant to the court order are taxable in the hands of the recipient and deductible by the payer. However, any child support amounts payable pursuant to the 1997 court order on or after the commencement day of the order are not taxable in the hands of the recipient or deductible by the payer.
Based on our review of the wording of the 1997 court order, we do not agree with the solicitor's interpretation that it is as if the Marriage Contract never existed with respect to child custody, child support and spousal support. In our view, the 1997 court order does not apply retroactively to eliminate the requirement under the Marriage Contract that child support and spousal support were payable for the XXXXXXXXXX year before the 1997 court order came into force. Therefore, it is our view that the spousal and child support received by XXXXXXXXXX pursuant to the Marriage Contract is taxable and required to be included in her income for XXXXXXXXXX. We note that under the 1997 court order, child support and spousal support are payable as of XXXXXXXXXX. We believe that this fact supports our view that the Marriage Contract is not void retroactively to the first day of the month following the taxpayers' separation (i.e., the first day that child and spousal support payments were required to be made under the Marriage Contract). Also, the fact that the 1997 court order does not order the recipient to repay any child support and spousal support amounts that were received pursuant to the Marriage Contract or that the payer be given credit for any amounts paid under the Marriage Contract further supports our view that the Marriage Contract is not void retroactively. XXXXXXXXXX.
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.
We trust our reply will be of assistance in this matter.
J. Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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