6 October 2008 Internal T.I. 2008-0291251I7 - Support Amount and Equalization of Family Assets

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.

Principal Issues: Whether part of the disability payments received monthly by the ex-husband and subsequently paid monthly to the ex-wife should be considered as "support amount" received by the ex-wife under subsection 56.1(4) of the Income Tax Act.

Position: No.

Reasons: Because the payments to the ex-wife were part of the family asset, and because an amount paid for the purpose of equalizing family assets is not considered to be paid on account of maintenance or support for tax purposes, these payments to the ex-wife would not be support amounts as defined in subsection 56.1(4).

								October 6, 2008

	Vancouver Island Tax Services Office	HEADQUARTERS
	Audit Division					André M. Gallant
(613) 957-8961
	Attention: Mr. Sandro Lucato
								2008-029125

Support Amount and Equalization of Family Assets

This is in response to your fax and email of August 25, 2008, and is further to our telephone conversation, regarding equalization of property payments received pursuant to a court order on a marriage breakdown.

Our understanding of the facts is as follows:

1. On XXXXXXXXXX , a court decision (the "Decision") was issued with respect to the marriage breakdown of XXXXXXXXXX (the "ex-husband") and XXXXXXXXXX (the "ex-wife"). The Decision reviewed was cited as follows: XXXXXXXXXX

2. The Decision provided, among other orders, that the ex-husband pay $XXXXXXXXXX per month child support per child and $XXXXXXXXXX spousal support per year, and that the disability insurance payments received monthly by the ex-husband (the "Payments") are "family assets" to be split equally with the ex-wife. The Decision also provided for an order that the ex-wife pay $XXXXXXXXXX spousal support per year to her ex-husband. The ex-husband and the ex-wife had agreed during trial that the Payments constituted a family asset that should be divided equally.

3. The Payments were paid to the ex-husband as a result of an illness that forced the ex-husband to give up his XXXXXXXXXX practice. The Decision stated that the Payments were tax free, without indicating the reasons for so concluding.

4. Your office, the Vancouver Island TSO, has reviewed the tax treatment of the Payments in the hands of the ex-husband and has concluded that in fact, as stated in the Decision, they are not taxable in his hands and that we should so assume in our response.

Your question concerns whether, for purposes of the inclusion of spousal support pursuant to paragraph 56(1)(b) of the Income Tax Act (the "Act"), part of the Payments paid by the ex-husband to the ex-wife should be considered as "support amount" received by the ex-wife pursuant to the definition of this term in subsection 56.1(4) of the Act.

Position of the Vancouver Island TSO

You consider that the Payments received by the ex-husband are not taxable in their entirety in his hands. As for the part of the Payments paid by the ex-husband to the ex-wife, you are unsure whether it should be considered as "support amount" as defined in subsection 56.1(4). While the Decision qualifies the Payments as part of the "family asset", you are not confident that this is the case.

OUR COMMENTS

We are of the view that the ex-wife should not be taxed in respect of the Payments for the reasons set out below.

You questioned whether the Payments were really part of the "family asset" as stated in the Decision. Since the Decision states that both parties agreed that the Payments were part of the family asset for equalization purposes, and the court made an order to the same effect, we would not generally substitute our judgment to that of a provincial court on a question within their jurisdiction.

Because the Payments were part of the family asset, and because an amount paid for the purpose of equalizing family assets is not considered to be paid on account of maintenance or support for tax purposes, we conclude that the parts of the Payments paid monthly to the ex-wife by the ex-husband would not be considered support amounts for the purpose of paragraph 56(1)(b).

We trust that these comments will be of assistance.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the CRA'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, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Yours truly,

S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch