22 January 2013 External T.I. 2012-0465511E5 - Deductible Support Payments

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: Are support payments deductible where the payments are made before the date of the agreement?

Position: A question of fact

Reasons: Depends if the agreement references the payments made before the date of the agreement.

XXXXXXXXXX
2012-046551
George A. Robertson, CMA
January 22, 2013

Dear XXXXXXXXXX:

Re: Deductible Support Payments

This is in response to your October, 2012 letter requesting our views on the deductibility of support payments. The facts provided by you are that your brother (B) and his wife separated XXXXXXXXXX years ago. An agreement was drawn up with B and his wife agreeing to the terms. B started making payments immediately. There was a delay in signing the agreement by B. The wife insisted that the agreement date be effective the date of signing. B deducted the payments and the wife apparently included the payments as income. However, the deduction by B has been disallowed.

Written confirmations of the tax implications inherent in particular transactions are provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at www.cra-arc.gc.ca/formspubs/menu-e.html. Notwithstanding the foregoing, we are prepared to provide the following comments that may be of assistance.

Paragraph 24 of Income Tax Interpretation Bulletin 530R Support Payments, states

Payments Made Prior to Date of Order or Agreement

Although payments made prior to the date of a court order or written agreement cannot be considered to be paid "under" the court order or written agreement, they may nevertheless qualify as support amount payments to be used in determining the amount the payer may deduct under paragraph 60(b). Subsection 60.1(3) provides that such payments made in the year of the order or agreement or in the preceding year are deemed to be paid under the order or agreement if the document provides that they are to be so considered. [Emphasis added]

Subsection 60.1(3) also deems the order or agreement to be made, generally, on the day on which the first such payment was made. This is necessary for purposes of determining whether or not there is a commencement day of the order or agreement, which will, in turn, determine the treatment under paragraph 60(b) of the support amounts payable thereunder. [Emphasis added]

Guide P102, Support Payments, states

Payments made before the date of the court order or written agreement

An amount paid before a court order or written agreement takes place or comes into effect is recognized if the order or agreement states that any amount previously paid is deemed paid under the order or agreement. However, the payments must be made in the year the order or agreement was made, or in the preceding year. [Emphasis added]

Example

Since the couple separated in January 2009, Brendan has been paying $500 monthly to Sarah in spousal support. On January 8, 2011, a written agreement was established confirming that Brendan is required to pay $500 monthly in support.

The written agreement also indicates that the amounts paid before January 2011 is considered paid and received under this agreement. [Emphasis added]

The payments made in 2010 and 2011 are considered support payments because they were paid in the year of the written agreement and the previous year. Therefore, these payments can be deducted. The 2009 payments are not considered support payments because they were not paid in the year of the written agreement or in the previous year, so they cannot be deducted by the payer and are not included in the recipient's income.

Attached for your convenience is a copy of the Objection process for Income Tax purposes. While we trust that these comments will be of assistance, they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R5 and are not binding on the CRA in respect of any particular situation.

Yours truly,

Sharmini Ratnasingham
for Director
Business & Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

Encl: Objection process for Income Tax purposes