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: (1) Is a court determined retroactive fixed monthly quantum
plus a percentage of annual bonuses payable as spousal support payment considered a periodic
payment? (2) Are the payer and recipient required to amend their prior years' individual income
tax returns to report retroactive support payments? (3) Should top up payment be considered a
non-deductible lump sum?
Position: (1) It is a question of fact and law as determined by
provincial family law as to the legal consequences of a specific order or judgement. Where a
lump sum payment is required upon judgement to give effect to a previous order(s), the lump sum
payment must first meet the requirement of being a support amount to be deductible; (2) No need
to file amended returns; (3) Depending on the wording of the initial orders, the payment of a lump
sum to comply with arrears could qualify as a support amount; however, the lump sum pertaining
to a prior year’s bonus would not meet the definition of a support amount.
Reasons: CRA policy as outlined in IT-530R, P102 and documents 2000-005864 & 2010-
037556.
XXXXXXXXXX
2011-041519
N. Pulandiran
March 28, 2012
Dear XXXXXXXXXX :
Re: Spousal Support Payments
We are writing in response to your email of July 21, 2011, in which you requested our
views on the deductibility of support payments. Specifically you asked for our views on
the deductibility of spousal support payments made in a factual situation which involved
a series of orders followed by a court judgement. You also asked for information
regarding the deductibility of payments where the court order requires additional support
payments to be made upon the receipt of future bonuses as well as information on the
process for amending the individual income tax returns of the payer and the recipient for
prior years.
It is a question of fact and law as determined by provincial family law as to the legal
consequences of a specific order or judgement. Under the Income Tax Act (the “Act”),
the terms consent, variation and temporary have no statutory definition and should
therefore be accorded their meanings in the context of family law orders.
Generally, where an initial order which specifies a monthly spousal support payment is
temporarily varied by the parties on consent for a specified duration, unless there is
information which provides evidence to a contrary legal effect or intention, it is
reasonable to assume that the provisions of the first order could apply for the purposes of
the Act once the specified duration expires.
Where a lump sum payment is required upon judgement to give effect to a previous
order(s), the lump sum payment must first meet the requirement of being a support
amount to be deductible. Paragraph 22 of Interpretation Bulletin IT-530R, Support
Payments, explains that a lump sum payment required by a court order or written
agreement in respect of a period prior to the date of the order or agreement would not be
considered a qualifying support amount for purposes of subsection 56.1(4) of the Act.
However, a lump sum amount paid in a taxation year will be regarded as qualifying as a
periodic payment if one of the following circumstances is present:
- It can be identified that the lump sum payment is in respect of payments
- due after the agreement or order had either fallen into arrears, or
- The lump sum was in respect of an advance or acceleration of periodic payments for an obligation under an existing court order, for the sole purpose of securing the funds to the recipient.
Depending on the wording of the initial orders, the payment of a lump sum to comply
with arrears could qualify as a support amount; however, the lump sum pertaining to a
prior year’s bonus would not meet the definition of a support amount.
Where the lump sum amount qualifies, the payment is included in the year when the
recipient receives it, and is deductible by the payer in the year the payment is made.
Where the amount involved is at least $3,000 and represents support amounts which fell
into arrears for a prior year, the payer is required to provide the recipient with a
completed Form T1198, Statement of Qualifying Retroactive Lump-Sum Payment. See
Guide P102, Support Payments for further information. Since the judgment and payment
were made in XXXXXXXXXX , there are no adjustments available to the payer for prior
years in respect of the payment of any lump sum.
Where additional support payments may be required as a result of the payment of future
bonuses, we state in paragraph 10 of IT-530R, Support Payments, that a specified sum of
money that is subject to adjustment in accordance with some reasonable formula or
index, for example, a percentage of payer’s income, may qualify as an allowance even
though the exact future amounts are not specified in the order or agreement. In document
2000-005864, we expressed the view that one-third share of any bonuses payable in
future calendar years to the receiving spouse could meet the characteristic of being a
periodic payment. That document also commented that the one-third share of bonuses
relating to the period prior to the agreement was a lump-sum payment which was not
deductible under the Act. It is a question of fact as to whether a bonus itself is paid
periodically and in the judgment provided, we note that even the court is not certain
whether this is a one-time event or not. Accordingly, we cannot comment on whether the
future bonuses will meet the requirements of qualifying as a support payment.
In order to avoid unnecessary delays and adjustments to their tax returns, support payers
should register their court orders or written agreements (including any amendments) with
the Canada Revenue Agency (CRA) by using Form T1158, Registration of Family
Support Payments. Since payments tied to bonus are not quantifiable at the time of
registration, it is important that you establish a process for retaining supporting
documentation in order to respond to any requests for supporting documentation.
We trust that the foregoing comments are of assistance.
Yours truly,
Sharmini Ratnasingham
Assistant Director
For Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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