26 February 2003 External T.I. 2003-0183665 - SUPPORT PAID BY AN ESTATE

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: We have been asked whether or not payments made by an individual's estate to his ex-spouse for her support are required to be included in the ex-spouse's income under paragraph 56(1)(b) of the Income Tax Act (the "Act") and are deductible by the estate under paragraph 60(b) of the Act.

Position. The payments are not deductible under paragraph 60(b) of the Act and are not taxable under paragraph 56(1)(b) of the Act.

Reasons: The payments are not a "support amount" for the purposes of paragraphs 60(b) and 56(1)(b) of the Act as a result of the definition of this term in subsection 56.1(4) of the Act.

XXXXXXXXXX 2003-018366
M. Eisner, CA
February 26, 2003

Dear XXXXXXXXXX:

Re: Support Paid by an Estate

This is in reply to your letter dated January 17, 2003, concerning the above-noted subject.

In the circumstances of your situation, an individual ("Individual A"), who had been making payments solely for the support of his ex-spouse ("Individual B") under a written agreement, died. The payments made to Individual B by Individual A prior to his death were deductible by Individual A under paragraph 60(b) of the Income Tax Act (the "Act") and were required to be included in the income of Individual B under paragraph 56(1)(b) of the Act. Subsequent to the death of Individual A, Individual A's estate is required to continue to make support payments to Individual B pursuant to the written agreement.

You have asked us for our comments on whether or not the payments made by the estate are deductible by the estate, and taxable in the hands of Individual B.

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 providing you with the following general comments.

In order for an amount to be deductible under paragraph 60(b) of the Act and taxable under paragraph 56(1)(b) of the Act, it must, inter alia, meet the definition of "support amount" in subsection 56.1(4) of the Act. A "support amount" is defined in that subsection as an amount payable or receivable as an allowance on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and children of the recipient, if the recipient has discretion as to the use of the amount, and (a) the recipient is the spouse or common-law partner or former spouse or common-law partner of the payer, the recipient and payer are living separate and apart because of the breakdown of their marriage or common-law partnership and the amount is receivable under an order of a competent tribunal or under a written agreement; or (b) the payer is a natural parent of a child of the recipient and the amount is receivable under an order made by a competent tribunal in accordance with the laws of a province.

Although the Act deems an estate to be an individual and taxes it on that basis, it is nevertheless not a natural person and cannot have a spouse or common-law partner or former spouse or common-law partner from whom it is living separate and apart nor could it be considered to be the natural parent of a child. It is, accordingly, our view that support payments made by a deceased's estate to the deceased's former spouse are not deductible under paragraph 60(b) of the Act and are not required to be included in the former spouse's income under paragraph 56(1)(b) of the Act.

We would also note, however, that the tax treatment of amounts received from a trust is ultimately a question of fact requiring a review of all relevant facts and documentation (such as the separation agreement, the will and any trust indenture), in order to establish whether such amounts are received, for example, as beneficiary of the trust or as annuity payments. As noted above, where the transactions are proposed, such a determination can be made in the context of an advance income tax ruling.

We trust that our comments are of assistance to you.

Yours truly,

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

- 2 -