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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: As of XXXXXXXXXX , Individual B owed Individual A the amount of $XXXXXXXXXX (the "Arrears") in respect of monthly spousal support that he was required to pay under several agreements. Under an amending agreement (the "Amending Agreement") dated XXXXXXXXXX , Individual B paid Individual A the amount of $XXXXXXXXXX (the "Amount") in full settlement of the Arrears. Is the Amount deductible by Individual B under paragraph 60(b) of the Income Tax Act (the "Act") and required to be included in Individual A's income under paragraph 56(1)(b) of he Act?
Position: No
Reasons: As indicated in paragraph 22 of IT-530, a lump sum payment made to obtain a release from a liability imposed by an order or agreement whether such liability be in respect of arrears of maintenance payments, future payments or both, does not qualify as an amount payable on a periodic basis under the order or agreement.
November 6, 2001
St. Catharines Tax HEADQUARTERS
Services Office M. Eisner
Kathryn Sisler (613) 957-2138
Office Examination
2001-010582
Support Payments
This is in reply to your memorandum of October 15, 2001 concerning the above-noted subject.
In the circumstances of your situation, XXXXXXXXXX ("Individual A") and XXXXXXXXXX ("Individual B"), entered into a separation agreement on XXXXXXXXXX and an amending agreement on XXXXXXXXXX (collectively, these two agreements will be referred as the "Agreements"). Under the Agreements, Individual B was required to pay monthly spousal maintenance of $XXXXXXXXXX to Individual A.
On XXXXXXXXXX, Individual A and Individual B entered into an agreement (the "Amending Agreement"), which amended the Agreements. Pursuant to the Amending Agreement, Individual B, as of XXXXXXXXXX, owed Individual A the amount of $XXXXXXXXXX in respect of spousal support in arrears (the "Arrears"). With respect to the Arrears, the Amending Agreement provided that Individual B would pay Individual A the amount of $XXXXXXXXXX (the "Amount") in full settlement of the Arrears.
You have asked us for our views on whether or not the Amount paid by Individual B to Individual A under the Amending Agreement is required to be included in Individual A's income and is deductible by Individual B.
As indicated in paragraph 22 of Interpretation Bulletin IT-530, a lump sum payment made to obtain a release from a liability imposed by an order or agreement whether such liability be in respect of arrears of maintenance payments, future payments or both, is not 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 (the "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. Consistent with this latter position, it is our view that Individual B is not entitled to deduct the Amount under paragraph 60(b) of the Act and the Amount is not taxable in the hands of Individual A under paragraph 56(1)(b) of the Act.
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 CCRA'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 that these comments will be of assistance.
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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