13 June 1994 External T.I. 9412735 - WHETHER CHILD SUPPORT WAS COURT ORDERED OR NOT

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.

Principal Issues:

-finding of fact as to the amount ordered under a court document
-whether tax payable on alimony payments is taxable as well as the underlying child support payments

Position TAKEN:

the $XXXXXX per month child support is taxable under paragraph 56(1)(b)

Reasons FOR POSITION TAKEN:

-the court order submitted appears to order a $XXXXXX payment and suggest that the payor also pay the tax thereon. On that basis the $XXXXX per month is payable under the court order whereas the tax payable thereon is voluntary

-the Department has appealed the Thibaudeau decision

XXXXXXXXXX		A. Humenuk
		941273
June 13, 1994

Dear XXXXXXXXXX:

Re: Child Support Payments

We are replying to your letter of March 10, 1994 concerning the taxability of child support payments to be made to you under the XXXXXXXXXX.

You submitted a copy of the order and asked us to provide you with an advance income tax ruling on your tax liability arising from the interim court order. As stated in paragraph 14 of the attached Information Circular 70-6R2 "Advance Income Tax Rulings" dated September 28, 1990 and Special Release thereto dated September 30, 1992, we cannot confirm the tax implications resulting from a proposed transaction where the central issue involves a matter before the courts or where the matter involves a finding of fact which cannot be established at the time of the request.

As we discussed in our telephone conversation of May 27, 1994 (XXXXXXXXXX/Humenuk), the Department has appealed the Federal Court of Appeal decision in the case of Suzanne Thibaudeau. The attached press release dated May 5, 1994 provides further information concerning the effect of this case on your tax liability and the possible courses of action you may wish to take.

Notwithstanding the effect of the Thibaudeau case on the tax liability relating to child support payments, there is some doubt in your particular case as to the amount of interim child support ordered by the Court. While it was clear that the court would have preferred that any payments so ordered be net of tax, the court acknowledged that it could not make such an order. As we understand the court order, XXXXXXXXXX is required under the agreement to pay you $XXXXXX per month for the support of your child. With respect to the tax payable by you on such payments, it appears that the Court is suggesting, rather than ordering, that XXXXXXXXXX increase his monthly payments to take into account your tax liability arising from such payments. In particular, the comments on page 6 concerning the voluntary nature of such payments support such a finding.

Provided that our understanding of the order is correct, the $XXXXXX per month payments which were ordered by the Court are required to be included in your income when received. Any amounts paid by XXXXXXXXXX in excess of the required amount (whether on account of tax or otherwise), would not be required to be included in your income. Please note that if the tax payable on the support payments were to be ordered by the court, such payment(s) would be taxable in your hands even if he makes the payments directly to the Receiver General on your behalf. The courts have considered the matter in the case of Monette v MNR (92 DTC 1622) and determined that where the governing document (decree, order or judgement of a competent tribunal or a written agreement) provides that the payer must pay the tax payable on the allowance in addition to the allowance itself, the tax payable will be considered part of the allowance and will be taxable as well.

We enclose Interpretation Bulletin IT-118R3 "Alimony and Maintenance" which provides further detail concerning the criteria under which child support payments are taxable to the recipient and deductible to the payer.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch