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:
Are payments received in settlement of child support payments in arrears taxable?
Position:
No
Reasons:
By virtue of the definition of "support amount" in subsection 56.1(4) of the Income Tax Act, for a payment of arrears to be deductible and required to be included in income, it must, inter alia, be identified with the payment of periodic amounts required by a written agreement or court order. Accordingly, when a reduced amount is paid to obtain a release from a liability imposed by an agreement or order, the payment is not deductible or required to be included in income because it was not made in accordance with the agreement or order.
XXXXXXXXXX 2001-007029
Cornelis Rystenbil, CGA
March 20, 2001
Dear XXXXXXXXXX:
Re: Child Support Payments in Arrears Settlement
This is in reply to your letter of February 14, 2001 in which you ask for our views on whether payments on account of child support in arrears are taxable.
In our telephone conversation (Rystenbil/XXXXXXXXXX) on March 7, 2001, you indicated that your ex-husband has never paid any child support since your separation in XXXXXXXXXX. The original Alberta court order required child support payments of $XXXXXXXXXX Cdn. per month. The copy of the XXXXXXXXXX court order included with your submission indicates that your ex-husband is required to pay you $XXXXXXXXXX US in XXXXXXXXXX equal monthly payments of $XXXXXXXXXX (commencing XXXXXXXXXX) in settlement of all your outstanding claims for child support arrears. Based on the documentation provided and our discussion, it is our understanding that the settlement amount is less than the total cumulated arrears payable pursuant to the original court order. The court order notes that the children have reached the age of majority.
Our views
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request as explained in Information Circular 70-6R4. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. As we were not provided with the original court order and the signed XXXXXXXXXX court order, we cannot provide conclusive comments; however, we are prepared to provide the following comments that are not binding on the Canada Customs and Revenue Agency (CCRA).
It is our general position that where arrears are settled for an amount which is less than the total periodic amounts that had fallen into arrears, the amount paid and received pursuant to the settlement, whether as a lump sum or by way of instalments, would not be deductible to the payer or required to be included in the recipient's income. By virtue of the definition of "support amount" in subsection 56.1(4) of the Income Tax Act, for a payment of arrears to be deductible and required to be included in income, it must, inter alia, be identified with the payment of periodic amounts required by a written agreement or court order. Accordingly, when a reduced amount is paid to obtain a release from a liability imposed by an agreement or order, as it appears in your case, the payment is not deductible or required to be included in income because it was not made in accordance with the agreement or order. The CCRA's position on this issue is set out in paragraph 22 of Interpretation Bulletin IT-530, which we have enclosed for your information.
We trust that these comments will be of assistance.
Yours truly,
Milled Azzi
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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