Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation] Has our interpretation of the definition of "commencement day" in subsection 56.1(4) of the Act changed as a result of Charles W. Miller v. The Queen?
Position: No
Reasons: We do not agree with this decision and it is an informal decision.
Clarification of our interpretation of the definition of "commencement day" in subsection 56.1(4), specifically paragraph (a) and subparagraphs (b)(ii) and (iii) of that definition.
July 13, 2004
Quebec Tax Services Office Headquarters
Client services Mario Gingras, CGA
(819) 827-9314
Attention: Ms. Louise Naud
2004-006852Request for an opinion on the definition of “commencement day”
This is in response to your email of March 24, 2004 in which you requested our opinion on the above subject.
QUESTION
You wish our views on whether the Tax Court of Canada's decision in Charles W. Miller v. The Queen, 2003 DTC 1449, changes our interpretation of subparagraph (b)(ii) of the definition of "commencement day" in subsection 56.1(4) of the Income Tax Act (the "Act").
THE MILLER CASE
The Miller case was heard by the Tax Court of Canada under the Informal Procedure. In this case, Mr. Miller and his ex-wife separated in 1985 and a first order provided for Mr. Miller to pay support to his ex-wife of $200 per month for each of his three children for a total of $600 per month. On November 15, 1996, a second order was issued to revise the support paid by Mr. Miller to $475 per month for each of the three children for a total of $1,425 per month. Finally, on December 16, 1999, a third order was issued to terminate support for one of the children. The support remained at $475 per month but for two children for a total of $950 per month. At issue was whether the December 16, 1999 order triggered a "commencement day" as defined in subsection 56.1(4) of the Act.
Mogan J. found that there was no commencement day under subparagraph (b)(ii) of the definition of that term because the amount of support per month per child had not changed. Mogan J. noted that subparagraphs (b)(ii) and (iii) of the definition should be distinguished because subparagraph (b)(iii) uses the phrase "the total child support amounts" whereas subparagraph (b)(ii) uses the phrase "the child support amounts". In Mogan J.'s view, since paragraph (b)(ii) does not refer to the "total", the change in support per child should be considered for this subparagraph rather than the total.
Since the Tax Court of Canada's decision in Miller was rendered under the Informal Procedure, it does not constitute a precedent under the Tax Court of Canada Act. Furthermore, we do not agree with this decision.
In addition, Tax Court of Canada judges appear to have different interpretations in situations similar to Miller. See Kovarik v. The Queen, 2001 DTC 3716, Samycia v. The Queen, 2002 DTC 3846, Whelan v. The Queen, 2003 DTC 3982 and McCarthy v. The Queen, 2003 DTC 4023, all Informal Proceedings.
However, we consider it appropriate to clarify our interpretation of the definition of "commencement day" in subsection 56.1(4) in light of the comments made by the judges in these various cases.
The expression "support amount" is defined in section 56.1(4) 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”. We are of the view that the definition of "support amount" includes the total amount that a taxpayer receives under an agreement or order at a particular time, usually on a monthly basis. The term "child support amount", which is also defined in subsection 56.1(4), provides that it is "any support amount that is not identified in the agreement or order under which it is receivable as being solely for the support of a recipient who is a spouse or common-law partner …". In our view, the definition of "child support amount" is "support amount", which is the total amount as discussed above, minus the amount that is solely for the support of the spouse.
The new rules regarding the deferral of child support payments provide transitional rules that allow taxpayers who have an agreement or order made prior to May 1997 setting out the support payments to continue to apply the old rules, i.e., deduction and income inclusion. These transitional rules are structured around the definition of "commencement day" in subsection 56.1(4). The new rules will apply provided the agreement or order fixing the "child support amount" has a "commencement day". Thus, to determine whether a "child support amount" is subject to the new rules, it is important to determine under which agreement or order the amount is paid.
Where it is determined that the "child support amount" is paid under an agreement or order made after April 1997, the agreement or order has a "commencement day" by virtue of paragraph (a) of the definition and the new rules apply regardless of whether there was an agreement or order made before May 1997.
Where it is determined that the "child support amount" is paid by virtue of an agreement or order made before May 1997 and that agreement or order is not amended after April 1997, and no other agreement or order is made after April 1997, the agreement or order does not have a "commencement day" by virtue of the definition of that term in subsection 56.1(4) and the old rules apply. However, if taxpayers make an election in prescribed form under subparagraph (b)(i) of the definition "commencement day" or the agreement or order specifies a "commencement day" pursuant to subparagraph (b)(iv) of that definition, the new rules will apply to the agreement or order.
Where it is determined that the "child support amount" is paid by virtue of an agreement or order made before May 1997 and that agreement or order was varied after April 1997 or another agreement or order is made after April 1997, subparagraph (b)(ii) or (iii) of the definition of "commencement day" in subsection 56.1(4) will be used to determine whether the agreement or order made before May 1997 has a "commencement day" and is subject to the new rules, if any.
Specifically, subparagraph (b)(ii) of the definition of "commencement day" in subsection 56.1(4) applies where it is determined that the amount of "child support" is paid by virtue of the agreement or order made before May 1997, and that agreement or order is varied after April 1997, and that variation affects the "child support amount". As explained above, since the "child support amount" is a total amount, we are of the view that we must look at the variation of the global "child support amount" and not, as Mogan J. did in Miller, the amount per child. Where subparagraph (b)(ii) of the definition of "commencement day" applies, it is the agreement or order made before May 1997 that has a "commencement day" from the time the varied amount is first payable.
Finally, subparagraph (b)(iii) of the definition of "commencement day" in subsection 56.1(4) applies where it is determined that "child support amounts” are paid partly under an agreement or order made before May 1997 and partly under an agreement or order made after April 1997, and the total of the "child support" amounts has changed. Since the definition of "child support amount" is a total amount per agreement or order as discussed above, we are of the view that under the phrase "the total child support amounts" used in subparagraph (b)(iii) of the definition, it is necessary to add up the "child support amount" from each of the agreements or orders and compare it to the "child support amount" in the pre-May 1997 agreement or order to determine if it has changed. In a situation where the total amount of "child support" has changed, the post-April 1997 order has a "commencement day" on the date it was made pursuant to paragraph (a) of the definition. The pre-May 1997 order also had a "commencement day" on that same date by virtue of subparagraph (b)(iii) of the definition. If subparagraph (b)(iii) of the definition did not exist, the "child support amount" paid under the post-April 1997 agreement or order would be subject to the new rules, whereas there would have been arguments that the amount of "child support" paid under the pre-May 1997 agreement or order would be subject to the old rules, since that agreement or order would not have a commencement day.
The problem in applying the definition of "commencement day" in a particular situation is to determine whether
- a pre-May 1997 agreement or order has been amended, in which case subparagraph (b)(ii) could apply
- an agreement or order made after April 1997 has the effect of nullifying the pre-May 1997 agreement or order, or is an agreement or order independent of the pre-May 1997 agreement or order, in which case paragraph (a) and/or subparagraph (b)(iii) could apply.
This determination is a question of fact that can only be resolved after an examination of all the facts of each case.
Thus, in Miller, since Mogan J. had determined on the particular facts of that case that the December 16, 1999 order was a variation of the November 15, 1996 order and that the "child support amounts” were still being paid under the November 15, 1996 order, we are of the view that the November 15, 1996 order had a commencement day by virtue of subparagraph (b)(ii) of the definition of "commencement day" in s. 56. 1(4) on the date the modified amount was first payable since the "child support amount" had changed globally from $1,425 per month to $950 per month.
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
Should you require further information on this subject, please do not hesitate to contact us.
Best regards,
Ghislaine Landry, CGA
Manager
Individuals, Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate
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, 2004
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, 2004
Email this Content