9 May 1994 External T.I. 9402275 - PAYMENT OF SPOUSAL SUPPORT - ALIMONY/MAINTENANCE

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.

Please note that the following document, although believed
to be correct at the time of issue, may not represent the
current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

940227
XXXXXXXXXX D. Zion

Attention: XXXXXXXXXX

May 9, 1994

Dear Sir:

Re: Payment of Spousal Support

We are writing in reply to your letter of January 4, 1994 addressed to the Windsor District Taxation Office in which you requested an advance ruling regarding the deductibility of payments under a proposed amended separation agreement.

We apologize for the delay in responding.

We have enclosed for your information a copy of Information Circular 70-6R2 and the subsequent special release dated
September 30, 1992 which sets out the guidelines under which advance income tax rulings are issued. The fee currently charged for advance rulings is a minimum fee of $481.50 (which must accompany the rulings request) and $90.00 (plus Goods and Services Tax) for each additional hour in excess of 5 spent in considering the request and furnishing the
rulings requested. We are thus, not in a position to provide you with an advance ruling at this time.

You have enclosed with your request a copy of the draft amended separation agreement. In the situation at hand, you
state that the parties have agreed that the payer spouse shall pay a monthly maintenance payment, the amount of which
will fall within a range in which the minimum and maximum amount has been predetermined. We note that the draft amended separation agreement has identified in article 8.3 a maximum monthly amount but no provision regarding a minimum amount, to specifically identify the "range" to which you refer in your letter. A determination of the tax consequences of such a situation involves a finding of fact which can only be made following a review of all the
relevant information including the documentation that initially provided for the payment of the support, and all subsidiary documentation relating to the transactions.

While all the necessary information has not been provided, we are providing some general comments which may be of assistance to you.

Our Comments

In the comments that follow unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993 (the Act). As we understand it, your basic enquiry is whether a payment, the amount of which is likely to vary from month to month within a specified range, can still be considered an allowance for the purposes of paragraph 60(b) and 56(1)(b) of the Act.

We note that, with respect to a marriage breakdown occurring after 1992, paragraphs 56(1)(b) and 60(b) of the Act have
recently been amended. The comments below have been made on the assumption that the marriage breakdown occurred prior to 1992 with the result that paragraphs 56(1)(b) and 60(b) are applicable as they read prior to those legislative changes.

The Department's general position on the deductibility of alimony and maintenance under paragraph 60(b) of the Act is
set out in paragraph 2 of Interpretation Bulletin IT-118R3 "Alimony and Maintenance", which has also been enclosed.

Paragraph 6 of this publication discusses the meaning of an allowance and indicates that a key factor in determining
whether a payment is an allowance is if the recipient has discretion as to the use of the amount. If, for example, the husband is paying his spouse's bills directly then the payments, and the agreement itself, would have to satisfy the conditions outlined in paragraphs 60.1(1) or (2) as explained in paragraphs 15 to 19 of the bulletin.

Furthermore, as stated in paragraph 9 of this same publication a specified sum of money which may be subject to adjustment in accordance with some reasonable formula or index may qualify as an allowance even though the exact
future amounts payable are not specified in the order or agreement. It is our view that where a maximum sum of money is identified rather than a formula or index then the amount may still qualify, provided that the amount of the allowance is determinable and the separation agreement otherwise fulfils all of the requirements of paragraphs 60(b) of the Act, as the case may be.

These comments represent our opinions of the law as it applies generally. As indicated in paragraph 21 of Information Circular 70-6R2 which has been enclosed, these opinions do not constitute an advance income tax ruling and are not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

J.A. Szeszycki
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch