29 June 2001 External T.I. 2001-0083845 - SUPPORT AMOUNT-LIFE INSURANCE

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 life insurance premiums paid pursuant to a written separation agreement are deductible under the provisions of the Act.

Position: No.

Reasons: Payments are not made to the taxpayer's spouse nor on her behalf but to third parties. The written agreement does not provide any reference to subsections 60.1(2) nor 56.1(2) of the Act and no reference of any kind is made by the parties as to the income tax consequences of these payments.

XXXXXXXXXX 	2001-008384
		Patrick Massicotte
June 29, 2001

Dear XXXXXXXXXX:

Re: Third Party Payments

We are writing in response to your fax of May 10, 2001, wherein you requested our comments regarding the deductibility, as support amounts under the Income Tax Act (the "Act"), of life insurance premiums you pay as part of your obligations under a separation agreement.

Facts

You and your spouse separated and entered into a written separation agreement in March 1993 under which (section 2.0) you are required to make monthly fixed spousal support payments. The agreement provides that these payments will be deductible to the payer and taxable to the recipient.

Pursuant to section 3.0 of the agreement, you are required to maintain a life insurance policy under which your spouse is designated as beneficiary for as long as you are obligated to pay the periodic support described above. This obligation is in addition to the periodic spousal support. No references to the income tax consequences of these payments is made in the written agreement.

Our Comments

Written confirmation of the tax implications arising from particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request pursuant to Information Circular 70-6R4 (copy enclosed). Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. However, we are prepared to provide you with some general comments which may be of assistance.

In general terms, under paragraph 60(b) of the Act, a deduction may be claimed in computing income for support amounts paid in a taxation year to the payer's spouse or former spouse (the recipient) while they were living separate and apart. The term "support amount" is defined in subsection 56.1(4) of the Act and refers inter alia to an amount payable or receivable as an allowance on a periodic basis for the maintenance of the recipient, children of the recipient or both if the recipient has discretion as to the use of the amount, and where the recipient is the payer's spouse or former spouse, the amount is receivable under an order of a competent tribunal or under a written agreement and the payer and recipient are living separate and apart because of the breakdown of their marriage.

An allowance is generally defined as a specified sum of money which has been established in advance of payment by the court or the parties as being the required payment to be made by the payer for the maintenance of the recipient, children of the recipient or both. Where the recipient has no discretion as to the use of the amounts, they do not qualify as support amounts and thus cannot be allowed as a deduction under paragraph 60(b) of the Act.

In the situation submitted, it appears the life insurance premiums are not payable to your spouse but directly to the insurance company and your spouse does not have the ability to redirect such payments. Accordingly, your spouse in that situation would have no discretion as to the use of the amount. Consequently, such amounts would not constitute support amounts for the purposes of the Act, although they may be part of your obligations under the separation agreement.

Nonetheless, where a court order or written agreement provides for the payment of amounts to a third party, such amounts may qualify as support amounts under certain conditions. Subsection 60.1(2) of the Act deals with amounts payable, under a court order or written agreement, to a third party for certain specific expenses incurred for the maintenance of inter alia the payer's spouse or former spouse, children in the spouse's or former spouse's custody, or both. Where the requirements of subsection 60.1(2) of the Act are met, the payer is essentially deemed to have paid the amounts to the spouse or former spouse as an allowance payable on a periodic basis and the spouse or former spouse is deemed to have discretion as to its use, allowing for a deduction under paragraph 60(b) of the Act.

However, as mentioned in paragraph 29 of Interpretation Bulletin IT-530, Support Payments (copy enclosed), in order for these provisions to apply, the court order or written agreement must specifically state that subsections 60.1(2) and 56.1(2) of the Act are to apply to the such third party payments.

In the situation submitted, we note that there are no references whatsoever to the income tax consequences relating to the payment of the life insurance premiums allowing to conclude that the provisions of subsection 60.1(2) and 56.1(2) of the Act are to apply to such payments. In our opinion, this would be determinative of the issue.

We hope that the above comments are of assistance to you.

Yours truly,

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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