6 March 2002 External T.I. 2002-0120185 - CHILD SUPPORT

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: Two previously married individuals ("Individual A" and "Individual B") became divorced and, pursuant to the divorce judgment (the "Judgment"), Individual A was required to make child support payments to Individual B. The child support was deductible by Individual A under paragraph 60(b) of the Income Tax Act (the "Act") and was required to be included in the income of Individual B under paragraph 56(1)(b) of the Act. After April 30, 1997, Individual A and Individual B entered into an amending agreement (the "Amending Agreement") which was approved by the court and which provided for an increase in the child support paid in respect of a child that was not set out in the Judgment. Does the Judgment have a "commencement day" as defined in subsection 56.1(4) of the Act?

Position: Yes -

Reasons: As indicated in paragraph 7 of IT-530, an agreement or order made before May 1997 will have a commencement day where the order or agreement is varied after 1997 to increase or decrease child support amounts payable.

XXXXXXXXXX  		2002-012018
M. Eisner, CA
March 6, 2002

Dear XXXXXXXXXX:

Re: Child Support

This is in reply to your letter of January 23, 2002, concerning the above- noted subject.

At the outset, we wish to note that as discussed with you (Eisner/XXXXXXXXXX), 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 income tax ruling request pursuant to Information Circular 70-6R4. However, we have proceeded to provide you with general comments which are not binding on the Canada Customs and Revenue Agency (the "CCRA").

With respect to a hypothetical situation, two individuals ("Individual A" and "Individual B") separated and became divorced prior to May 1, 1997. Individual A paid Individual B child support in respect of two children pursuant to the terms of a divorce judgment (the "Judgment"). The child support was deductible under paragraph 60(b) of the Income Tax Act (the "Act") by Individual A and was required to be included in the income of Individual B under paragraph 56(1)(b) of the Act. After April 30, 1997, Individual A and Individual B entered into an amending agreement (the "Amending Agreement") and this variation was approved by the Court. The Amending Agreement indicated that the Judgment was to remain in effect and that Individual A was no longer required to pay support in respect of one of the two children because, as specified in the Judgment, the payment of support in respect of the child was only required to be paid until the child was no longer in full-time attendance at an educational institution. In the case of the other child, the Amending Agreement provided for an increase in the amount of monthly support that was not set out in the Judgment, but that the increased amount would be payable in accordance with the conditions set out in the Judgment. You enquire as to the tax consequences of the Amending Agreement.

Our Comments

As you are aware, the CCRA's general position on support payments is set out in Interpretation Bulletin IT-530.

Under the new child support regime, payments of child support amounts under an agreement or court order are not deductible by the payer and are not required to be included in the recipient's income. The new regime applies to an agreement or court order if the agreement or court order has a "commencement day" which is defined in subsection 56.1(4) of the Act. General comments on that term are set out in paragraphs 7 and 8 of IT-530. In relation to the information set out above, item (b) of paragraph 7 indicates that an agreement or order made before May 1997 will have a commencement day where the order or agreement is varied after April 1997 to increase or decrease the child support amounts payable; however, paragraph 8 indicates that revisions to increase or decrease child support amounts payable do not include automatic changes in child support amounts that are built into the order or agreement (e.g., a cost -of-living increase). Accordingly, in the above situation as a result of the Amending Agreement, the Judgment would have a commencement day, which, as indicated in paragraph 7(b) of IT-530, is the date on which the first payment of the varied amount is required to made. It follows that payments required to be made on or after that day, for a period beginning on or after that day, would not be deductible by the payer under paragraph 60(b) of the Act, nor required to be included in income of the recipient under paragraph 56(1)(b) of the Act. We also note that the fact that an agreement or order indicates that, for income tax purposes, payments of child support are deductible to the payee and taxable in the hands of the recipient, is not determinative of the tax consequences of the payments. Rather, the tax treatment of the payments must be determined by referring to the applicable provisions of the Act.

We trust that our comments are of assistance to you.

Yours truly,

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