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.
M. Eisner, CA
March 6, 2002
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.
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.
Milled Azzi, CA
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2002
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2002