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: Monthly payments will be made during a year pursuant to a written separation agreement. Each payment will be comprised of an equal amount (the "Amount") specified in the written agreement for the support of the spouse plus an amount related to income taxes payable on the Amount. The issue is whether the monthly payments can be regarded as being an amount payable "as an allowance on a periodic basis for the maintenance of the recipient ... if the recipient has discretion as to the use of the amount" for the purposes of the definition of "support amount" in subsection 56.1(4) of the Act.
Position: Generally yes
Reasons: The position is consistent with comments in paragraph 10 of IT-530, and relevant case law.
XXXXXXXXXX 2002-014902
M. Eisner, CA
October 10, 2002
Dear XXXXXXXXXX:
Re: Spousal Support
This is in reply to your letter dated June 25, 2002, concerning the above-noted subject. We also acknowledge our telephone conversation on September 24, 2002 in which we obtained clarification on the issue raised in your letter.
In the circumstances of your situation, a husband ("Individual A") and wife ("Individual B") separated from each other in 2002 and will enter into a written separation agreement (the "Agreement"). Under the Agreement, Individual A will make monthly payments to Individual B with each payment being comprised of a spousal support amount plus an amount for Individual B's income taxes on this support, such that Individual B will be assured a certain net support amount.
You have asked us about the deductibility of the monthly payments.
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 ruling request submitted in the manner set out in Information Circular
70-6R5. Where the transactions are completed, the enquiry should be submitted to your local Tax Services Office. However, we are prepared to provide the following comments in respect of your situation, which are of a general nature and are not binding on the Canada Customs and Revenue Agency.
As you are aware, our general position on support payments is set out in Interpretation Bulletin IT-530. We also note that the formula concerning the deduction of support amounts under paragraph 60(b) of the Income Tax Act (the "Act") is set out in paragraph 14 of IT-530 and comments on the definition of "support amount" in subsection 56.1(4) of the Act are set out in paragraph 4 of IT-530.
In our opinion, the issue to be determined is whether the payments on account of income taxes related to the spousal support constitute an "allowance (payable) on a periodic basis for the maintenance of the recipient ... if the recipient has discretion as to the use of the amount" as required in the definition of "support amount". As stated in paragraph 10 of IT-530 "Support Payments", it is our view that a specified sum of money that is subject to adjustment in accordance with some reasonable formula or index (e.g., a percentage of payer's income or the cost of living index) may qualify as an allowance even though the exact future amounts payable are not specified in the order or agreement. In addition, the courts have considered the situation where a written agreement or court order provides that the payer must pay the tax payable on the allowance in addition to the allowance itself (see Guerin, 94 DTC 1356, and Monette, 92 DTC 1622). Consistent with these decisions, it is our view in the situation you describe where, pursuant to a written agreement, monthly payments are made during each year and each payment is comprised of an amount for the support of the spouse (the "Amount") plus an amount in respect of income taxes that will be attributable to the Amount, each of the payments will generally satisfy the definition of "support amount" within subsection 56.1(4) 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
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