24 October 2002 External T.I. 2002-0149365 - REPAYMENT-SPOUSAL 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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: During the taxation year 2002, one individual ("Individual A"), who decided to become a non-resident in the latter part of 2001, made spousal support payments to another individual ("Individual B") pursuant to a written agreement (which had been entered into many years ago). However, an alternative arrangement (concerning the making of spousal support payments under the agreement) has now been made and Individual A is now interested in having Individual B repay the amounts that Individual B received in 2002 that are otherwise required to be included in Individual B's income under paragraph 56(1)(b) of the Act (i.e., the repayment would be made pursuant to a subsequent agreement). The concern is whether Individual B would still be required to include the spousal support received in 2002 in income under paragraph 56(1)(b) of the Act.

Position. The support is required to be included in the income of Individual B under paragraph 56(1)(b) of the Act.

Reasons: As there is no provision similar to paragraph 60(c.2) of the Act with respect to a reimbursement made under a written agreement, it is our view that Individual B cannot claim a deduction for the reimbursement.

XXXXXXXXXX 2002-014936
M. Eisner, CA
October 24, 2002

Dear XXXXXXXXXX:

Re: Spousal Support

This is in reply to your letter dated June 27, 2002, concerning the above-noted subject.

In the circumstances of your situation, a Canadian couple ("Individual A" and "Individual B"), who became divorced many years ago entered into a written agreement (the "Agreement") under which Individual A was required to make spousal support payments to Individual B on a sliding scale based on earned income and then lower fixed payments after Individual A stopped generating earned income. Since the Agreement, Individual A has made all the required spousal support payments and has claimed deductions under paragraph 60(b) of the Income Tax Act (the "Act") while Individual B has included them in income pursuant to paragraph 56(1)(b) of the Act.

In the latter part of 2001, Individual A decided that he would become a non-resident and, rather than continuing to make support payments to Individual B, would try and arrive at an alternative arrangement with Individual B. These two individuals, after having discussed a lump sum settlement to replace the support payments, had some difficulty in arriving at an alternative arrangement because of the "floating" obligation with respect to the support payments for the next few years. During the time that Individuals A and B were negotiating an alternative arrangement, Individual A continued to pay monthly amounts pursuant to the Agreement after he ceased to be a Canadian resident to ensure that Individual B had adequate cash flow. An alternative arrangement agreed upon by Individuals A and B has recently been implemented and Individual A is now interested in having Individual B repay the spousal support amounts he paid in 2002. However Individual B is concerned that if she returns those amounts, they would still be required to be included in her income. You have asked us for our views on this matter.

Our Comments

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 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.

For the purposes of discussing a repayment of support below, we have assumed that the spousal support which is paid by a payer to his or her former spouse under a written agreement is otherwise required to be included in the income of the recipient under paragraph 56(1)(b) of the Income Tax Act (the "Act"). We would also caution that the tax treatment of amounts paid or received under any particular agreement is a question of fact, such that the determination of the tax treatment ultimately requires a review of all relevant facts and agreements.

Where spousal support is received in a year under a written agreement and subsequently the recipient repays that support to the payer pursuant to another written agreement, it is our view that in order for the repayment to be deductible (effectively treated as an offset against the spousal support) for the purposes of the Act, there would need to be a provision similar to paragraph 60(c.2) of the Act applicable to written agreements. This provision permits a deduction of an amount paid by an individual in the year, or one of the 2 preceding years, under a decree, order or judgment of a competent tribunal as a reimbursement of an amount included in income under paragraph 56(1)(b), (c) or (c.1) of the Act, to the extent that the reimbursement was not previously deducted (see paragraph 34 of IT-530). As there is no provision that allows a similar deduction with respect to a reimbursement made under a written agreement, it is our view that a deduction cannot be claimed for such a reimbursement made in respect of support.

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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