17 July 1991 Income Tax Severed Letter 911864 F - Maintenance 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.

DATE: July 17, 1991

This is in reply to your fax transmission and your telephone conversation (Fuoco/Wilkes) dated July 9, 1991, wherein you requested our opinion as to whether a maintenance payment received by the Taxpayer should be included in her taxable income.

The facts as we understand them are as follows:

FACTS:

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3.     24(1)

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Our Comments

Given the particular circumstances we have assumed that your request refers to whether or not paragraphs 56(l)(b), 56(1)(c) or 56(1)(c.l) of the Income Tax Act would apply to include the amount in computing the income of the Taxpayer. In our opinion, a lump sum payment made in order to obtain a release from the liability imposed by the order would not be deductible by the payer nor would it be taxable to the Taxpayer because the payment was not made in accordance with the order.

The following court decisions support this position and are summarized as follows:

In McNeely v. M.N.R. (81 DTC 796), the taxpayer wife was entitled to receive, under the terms of a separation agreement, payments for maintenance and support in which the taxpayer's husband defaulted in making the payments and the taxpayer received judgment in the amount of the arrears. When the husband made the payment in satisfaction of the arrears, the wife did not include the payment in income and the Minister assessed. The Tax Review Board found that the

lump sum payment was not made on account of maintenance liability under the terms of the separation agreement, rather it was made to obtain the taxpayer's husband's release from maintenance liability arising from the separation agreement. While the payment may have been made "consequent to", the separation agreement, it was not received pursuant to the separation agreement as an allowance payable on a periodic basis and, accordingly, the taxpayer's appeal was allowed.

In McGuire v. M.N.R. (82 DTC 1813), the taxpayer's husband was ordered to pay weekly child support pursuant to two court orders. The husband never made the payments and negotiated a settlement with the taxpayer whereby the taxpayer would receive a lump sum in respect of child support arrears. The Minister assessed and included the payment in the taxpayer's income. The Tax Review Board found that the lump sum could not be said to have been payable pursuant to either of the Court orders regarding payment of the weekly sum. Therefore, the payment was not within the meaning of the relevant statutory provision and the taxpayer's appeal was allowed accordingly.

In Burnes v. M.N.R. (83 DTC 338), the taxpayer's husband was ordered by a provincial court in 1965 to pay monthly maintenance to the taxpayer. In 1975, the taxpayer commenced an action to recover arrears and in 1976, the action was settled for a lump sum of $6,000 which was substantially less than the arrears then owing. The Minister assessed and included the $6,000 in the taxpayer's income. The Tax Review Board found that the lump sum payment was not made pursuant to the 1965 provincial court order but was an amount paid to release the taxpayer's husband from an obligation imposed on him by that order. Accordingly, the amount of $6,000 did not fall within the relevant statutory provision and was therefore not taxable.for Director

Business and General DivisionRulings DirectorateLegislative and Intergovernmental     Affairs Branchcc. Ms. Brenda Scarcella, Winnipeg D.O./Public Relations