20 June 2014 External T.I. 2014-0520191E5 - Lump sum payments of support

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 lump-sum payments of arrears support are deductible, specifically when there are more than one of these payments in a year?

Position: It is a question of fact; the arrears payment must be a support amount.

Reasons: When lump sum payments are made to bring periodic payments required by a court order or written agreement which have fallen into arrears up-to-date, the payments could be considered a support amount for purposes of subsection 56.1(4).

XXXXXXXXXX
2014-052019
Eric Wirag, CPA, CMA
(613) 957-2090

June 20, 2014

Dear XXXXXXXXXX,

We are replying to your letter of February 6, 2014, in which you asked for our comments regarding the deductibility of multiple lump-sum arrears payments of support amounts to a former spouse for the former spouse's maintenance ("spousal support") under paragraph 60(b) of the Income Tax Act (the "Act"). More specifically, you are inquiring as to whether lump-sum arrears payments of spousal support made on more than one occasion in a particular year would be treated differently than a single lump-sum arrears payment of spousal support that brings all required payments up-to-date.

You have provided a situation where an individual is obligated under a separation agreement to make monthly support payments to a former spouse. The individual makes regular monthly payments to the former spouse, but each monthly payment is for an amount less than required under the agreement. The individual then makes one or more unscheduled "catch-up" payments to the former spouse throughout the year, so that the total of all payments made in the year meet the total required support amounts under the agreement.

Our comments:

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced).  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

In order for an amount paid for spousal support to be deductible under paragraph 60(b) of the Act, it must first qualify as a "support amount" as defined in subsection 56.1(4) of the Act. Subsection 56.1(4) provides that an amount is a support amount if:

• it is payable or receivable as an allowance on a periodic basis;
• it is paid for the maintenance of the recipient, children of the recipient or both the recipient and children of the recipient;
• the recipient has discretion as to the use of the amount; and
• where the recipient of the amount is the spouse or common-law partner or former spouse or common-law partner of the payer, the parties are living separate and apart because of a breakdown of their relationship and the amount is receivable under an order of a competent tribunal or under a written agreement; or, where the payer is a legal parent of a child of the recipient, the amount is receivable under an order made by a competent tribunal in accordance with the laws of the province.

Generally, an amount paid as a single lump sum does not qualify as an amount payable on a periodic basis and therefore does not meet the definition of a support amount. However, paragraph 22 of Interpretation Bulletin IT-530R, Support Payments, explains that there may be situations where an amount paid as a lump sum can be regarded as qualifying as a periodic payment when it can be identified that the lump-sum payment represents amounts payable periodically that were due after the date of the court order or written agreement that have fallen into arrears.

Where periodic payments payable under a court order or written agreement, that are support amounts as defined in subsection 56.1(4), have fallen into arrears and an amount is paid to bring those requirements up to date, the lump-sum payment would generally be considered a support amount. This could apply to a single lump-sum arrears payment made in a year, or to multiple lump-sum arrears payments made in a year, to bring the requirements of the written agreement up to date, as long as the nature of the underlying legal obligation of the periodic maintenance payments is unchanged. However, a lump-sum payment to obtain a release from a liability imposed by an order or written agreement is not considered to be a periodic payment because it was not made in accordance with the agreement, and it would not qualify as a support amount. This is the case whether such liability is in respect of arrears of maintenance payments, future payments or both.

We trust our comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate