17 July 1991 Income Tax Severed Letter 911407 F - Alimony - Non-Residents

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.

SUBJECT:     Subdivision e Deductions for Non-Residents

This is in reply to your memorandum dated May 17, 1991, in which you requested our comments concerning the deductibility of alimony under the following situations:

1.     Section 115 - Computation of Taxable Income Earned in Canada ("T.I.E.C.").

2.     Section 217 election.

3.     Section 114 - Part Year Residents

You also questioned what effect such alimony would have on the payor's computation of "earned income" for purposes of a Registered Retirement Savings Plan ("RRSP").

Our Comments:

Pursuant to subsection 115(1) of the Act, "the T.I.E.C. for a taxation year of a person who at no time in the year is resident in Canada is the amount of his income for the year that would be determined under section 3 if... " (thereafter computed in accordance with paragraphs 115(1)(a) to (f)). As section 3 of the Act is the basis for computation of T.I.E.C. and no rules in 115(1)(a) to (f) apply to deny or limit-otherwise eligible subdivision a deductions, it is our view that alimony paid by a non-resident of Canada to the extent it meets the criteria described in paragraph 60(b) of the Act is deductible in the computation of T.I.E.C. Pursuant to subsections 4(2) and (3) of the Act, alimony paid by a non-resident of Canada is not considered applicable either wholly or in part to a particular source or to sources in a particular place, as the case may be. Since the deduction for alimony would then fall under paragraph 3(c), any amount by which the deductible alimony exceeds Canadian source income (i.e. paragraph 3(a) and (b) amounts determined under the rule in 115(1)(a)and (b)) will not form part of the taxpayers non-capital loss (paragraph 111(8)(b)).

Under a section 217 election, amounts otherwise taxable by virtue of paragraph 212(1)(f), (h), (j) to (m) or (q) shall, notwithstanding section 115, be added to the aggregate of the amounts determined under subparagraphs 115(1)(a)(i) to (v) in computing T.I.E.C. Accordingly, our comments above apply equally in that eligible alimony is deductible in arriving at T.I.E.C.

Where section 114 applies, the taxpayer's taxable income for the taxation year is the aggregate of paragraphs 114(a) and (b) minus those deductions described in the closing paragraph of that section (i.e. certain deductions permitted for the purpose of computing taxable income). In arriving at the taxpayer's income for the period throughout which he was resident in Canada (114(a)) and his T.I.E.C. for the remainder period (114(b)), the same concepts discussed above apply. That is, alimony to the extent it is otherwise eligible (e.g. 60(b)) is deductible in arriving at the I 14(a) and (b) amounts. We would like to point out, however, that where alimony paid in the period described in 114(a) or (b) exceeds the income for that period, the excess cannot be applied to reduce the amount determined (e.g. the income or T.I.E.C., as the case may be) in the other period (see example attached).

In regard to your question on RRSP's, any alimony paid by a taxpayer, whether or not resident in Canada, which is deductible under paragraph 60(b) will reduce the taxpayer's "earned income" pursuant to subparagraph 146(1)(c)(vi) of the Act.

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental     Affairs Branch

Attachment

Section 114 Example

Facts:

Taxpayer emigrates from Canada on July 1, 1990.

Section 114 Computation of Taxable Income

Section 114 Taxable Income  =   25,000 (ignoring deductions to arrive at taxable income)