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.
Hélène Beauchemin Personal and General Section Director General Client Assistance Directorate
Attention: Jeff Shaver Correspondence Section
XXXXXXXXXX
Ministerial Correspondence YS 93-1288T
We are replying to your memorandum of April 7, 1993 concerning the above- noted taxpayer and the payments she received from Alberta Family and Social Services.
You have asked us to review the situation to determine if the amounts paid by XXXXXXXXXX to the province of Alberta during 1991 should be included in XXXXXXXXXX income as alimony. The following comments are based on the assumption that the underlying documentation which was not included with the file, such as any court orders or agreements for maintenance, support the assertions made in the file. In particular, we assume that XXXXXXXXXX made the payments to the province because of the province's right to recoup the social assistance paid to XXXXXXXXXX and not because the province had agreed to collect the funds on her behalf under a provincial program such as the Maintenance Enforcement Program of Alberta.
Assumptions of Fact
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The Department's position, as stated in the February 1993 draft version of the Guide to the T5007 Return of Benefits, is that once an individual assigns his or her rights to income which is receivable by that person to a government agency, the income loses its identity. Where the government agency then pays that individual an amount based on a means, needs or income test, the amount so received is then considered to be social assistance, which is effectively non-taxable by reason of the offsetting deduction in computing taxable income permitted under paragraph 110(1)(f) of the Act. In your view, this position is unfair in that it implies that alimony or support payments paid to a governmental agency are included in a person's income if the province in which he or she lives does not have a formal assignment of rights procedure, whereas in a province which has such a procedure, the amount is excluded from income even though the circumstances might otherwise be identical.
In our view, the significant factor is not whether a formal assignment of rights has been made but whether the governmental body is collecting the amount from the defaulting spouse on its own behalf or on behalf of the spouse in need of income support. In Alberta, an individual's rights to income support under a maintenance or alimony agreement are subrogated to the province for the period of time during which the recipient receives payments under the SDA. It is not necessary for an individual in Alberta to assign his or her rights under an alimony or maintenance agreement in order for the amount received by the individual to "lose its identity" as alimony or income support from a spouse or former spouse because subsections 14(1) and (2) of the SDA transfers the right to those payments (other than any current payments which the payer makes directly to the individual receiving social assistance) to the province for any period during which social assistance is given.
In a province where the rights are not subrogated to the province by law, support payments which are collected by the province would belong to the spouse or former spouse specified in the court order or agreement unless that individual had assigned those rights to the province. In that case, if the individual had not formally assigned the rights to those payments to the province, the amounts collected by the province would be deemed to have been constructively received by that individual.
The facts of this case would appear to be similar to that of a recent court case decided by the Tax Court of Canada on February 12, 1993 concerning Carol and William Bishop. The main factor which distinguishes that case from that of XXXXXXXXXX is that Ms Bishop lived in Ontario and assigned her rights to income support to the province whereas XXXXXXXXXX lived in Alberta where there is no assignment of rights procedure because XXXXXXXXXX rights were already subrogated to the province by operation of section 14 of the SDA. As stated above, it is our view that the relevant fact is not the manner in which the rights are transferred to the province but that the rights were in fact transferred.
Consequently, based on the facts as stated above, it would appear that the amount received by the province from XXXXXXXXXX would not be payments described in paragraph 56(1)(b) of the Act as modified by section 56.1 of the Act and thus would not be included in XXXXXXXXXX income as alimony or maintenance.
We are however, reluctant to suggest any assessing action with respect to XXXXXXXXXX without a complete review of all the documentation. Please note as well that the situation described above can be distinguished from those situations where a province collects alimony or maintenance for the intended recipient under a program such as the Maintenance Enforcement Program of Alberta. While we have not analyzed such situations thoroughly, it is our initial feeling that an amount collected by the province on behalf of a recipient will still be deductible to the payer and included in the recipient's income if the amount would have be deductible by the payer and included in the recipient's income if paid directly to the recipient.
B.W. Dath DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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