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:
payment of fixed periodic amount for a specific expense under a separation agreement
Position TAKEN:
unless the agreement specifies that the deeming provisions of 56.1(2) and 60.1(2) apply, the payment will not be deductible/taxable since the recipient spouse does not have discretion as to the use of the funds
Reasons FOR POSITION TAKEN:
56(12) clarifies the def'n of allowance by specifically excluding such payments
A. Humenuk
XXXXXXXXXX 951753
Attention: XXXXXXXXXX
September 1, 1995
Dear Sirs:
Re: Alimony and Maintenance
We are replying to your letter of June 23, 1995 in which you ask whether certain payments made by a particular individual to his spouse would be deductible under paragraph 60(b) of the Act and correspondingly included in the income of his spouse.
The individuals in question separated in January of 1995. A separation agreement was drafted by the parties which indicated that the content of that agreement could not be altered. Subsequently, a second agreement was entered into which declared the first agreement null and void and required the husband to pay $375 per month towards the mortgage on the matrimonial home owned by the wife. The second agreement also stated that no alimony, maintenance or child support was payable by the husband.
A determination of the tax consequences applicable to a particular situation involves a finding of fact which can only be made following a review of all the relevant documentation and related information. Based on the lack of detail in your letter concerning the first agreement, it would appear that the parties have agreed that the first agreement has no effect and is not relevant for the purpose of your question. While we cannot comment on the validity of either of the agreements referred to in your letter, we offer the following general comments concerning payments made by one spouse for a specific purpose such as a mortgage obligation.
Paragraphs 56(1)(b) and 60(b) of the Act set out the conditions under which a payment may be deducted by one spouse and included in the income of the other spouse. In order to be deductible to the payer and included in the recipient spouse's income, an amount must, among other things, be paid as alimony or an allowance payable on a periodic basis for the maintenance of the recipient, the children of the recipient or the recipient and the children of the recipient. As stated in paragraph 7 of Interpretation Bulletin IT-118R3 "Alimony and Maintenance", the pre-Gagnon (Supreme Court of Canada decision, Gagnon v. The Queen, 86 DTC 6179) definition of allowance does not include an amount earmarked for a specific expense since the recipient does not have complete discretion as to the use of the funds. As a result of the enactment of subsection 56(12) of the Act, the pre-Gagnon definition of allowance also applies to separation agreements entered into after 1987.
Thus the payment of a fixed amount on a periodic basis for a specific expense, such as a monthly mortgage payment, whether made directly to the recipient spouse or to a third party, will not qualify for the deduction under paragraph 60(b) of the Act nor will the amount be required to be included in the income of the recipient unless the separation agreement specifically states that the deeming provisions of subsections 56.1(2) and 60.1(2) of the Act apply. Paragraph 18 of the bulletin provides further details on the circumstances under which an agreement can be structured so that amounts earmarked for a specific expense are deductible to the payer and taxable to the recipient.
These comments represent our opinions of the law as it applies generally. As indicated in paragraph 21 of Information Circular 70-6R2 "Advance Income Tax Rulings, 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,
P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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