21 August 1992 Income Tax Severed Letter 9221826 - 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.

August 21, 1992

Client Assistance Directorate Business and
General
P. McNally Division
A/Director General J.A. Szeszycki
(613) 957-2135
Attention: Joanne Ahearn
A/Chief
Enquiries Programs Division
922182
Maintenance Payments

This is in reply to your memorandum of July 17, 1992 in which you requested confirmation as to the technical interpretation of paragraph 60.1(2)(a) of the Income Tax Act (the "Act"). We apologize for having delayed our response. Specifically, you have asked us to clarify whether payments to third parties on account of services, such as child care, would be deductible and whether payments in respect of the acquisition of tangible property, other than for educational or medical purposes, would be deductible under this provision of the Act.

Your memorandum uses the term "intangible property" in connection with the payment of an expense. We must clarify, at the outset, that the term "property" encompasses things, whether tangible (e.g., land and buildings) or intangible (e.g., rights, goodwill), that can be the subject of ownership and, therefore, does not include services.

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Paragraph 60.1(2)(a) provides for the deduction of certain expenditures as payments on account of maintenance. It describes the eligible expenditures, in part, as

• "the aggregate of all amounts...paid by a taxpayer in the taxation year pursuant to a decree, order or judgement of a competent tribunal or pursuant to a written agreement, in respect of an expense (see below)...incurred...for maintenance of a person who is..." (emphasis ours).

Within the provision, the word "expense" referred to in the underlined phrase is immediately qualified by the following words inside parentheses:

• "...(other than an expenditure in respect of a self-contained domestic establishment in which the taxpayer resides or an expenditure for the acquisition of tangible property that is not an expenditure on account of a medical or educational expense or in respect of the acquisition, improvement or maintenance of a self-contained domestic establishment in which the person described in (i) or (ii) resides)..."

Given the type of grammatical structure used, it is clear that any expenditure that is not described within the parentheses and that otherwise qualifies under the provision would be deductible to the payer. The words within the parentheses describe two types of expenditure that are not covered by the special provisions of subsection 60.1(2):

• 1. Any expenditure made in respect of a self- contained domestic establishment ("SCDE") in which the payer resides, and
• 2. Any expenditure for the acquisition of tangible property unless: a) that expenditure is in respect of the acquisition of, improvement or maintenance of the SCDE in which the spouse etc. resides, OR b) that expenditure is on account of a medical or educational expense.

The way in which the words within the parentheses are written suggests that, in general, expenditures in respect of tangible property are not contemplated as being deductible under this provision but there are exceptions.

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The first exception, as referred to in 2. a) above, could include the SCDE itself, with the expenditures being the mortgage payments or items purchased in connection with the maintenance of the property, such as hardware supplies. Due to the operation of paragraph (b) a downpayment on a SCDE is excluded as a deduction under this provision. Similarly, an expenditure in respect of an improvement rather than a repair or maintenance expense is affected in the same manner (see paragraph 4 of IT-128R for guidelines used in distinguishing between the two expenditures). Note that expenditures in respect of maintenance services for the SCDE in which the spouse resides, i.e., services such as plumbing or electrical repair, are not expenditures described within the parentheses as exclusions and would, if they otherwise qualified, be deductible as expenses incurred for the maintenance of the spouse.

The second exception, as referred to in 2. b) above is tangible property that can be reasonably characterized as a medical or an educational expense of the spouse or children in the custody of the spouse. Examples of tangible property that would be medical in nature can be found in paragraphs 118.2(2)(i) to (k) of the Act and Regulation 5700 of the Income Tax Regulations. Examples of tangible property that would be educational in nature include textbooks, reference books, and school supplies.

In summary, the provision as a whole allows the payer to deduct expenditures made on account of the maintenance of the spouse and\or the children in the custody of that spouse, where the direction for the payment of these expenses is stipulated in a written agreement or court order etc. and it is agreed that this provision and 56.1(2) apply. Consequently, a payment made pursuant to a court order for the maintenance of children in the custody of the spouse that is an expenditure in respect of child care services or medical/dental services, for example, where the court order also specifies that the provisions of subsections 56.1(2) and 60.1(2) apply, would be deductible to the payer and taxable in the hands of the spouse deemed to be the recipient.

If any further clarification is needed please contact Jack Szeszycki at the telephone number noted above. B.W. Dath Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch

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