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:
Whether an amended court order can have retroactive effect to provide for the deductibility of third party payments.
Position:
Yes, under certain circumstances.
Reasons FOR POSITION TAKEN:
Department has taken the position that where a court order which intends that certain amounts be taxable and deductible is lacking in the correct phrasing a further court order which incorporates the correct phrasing, clearly indicates it was the intent of the parties in the original order, and introduces no additions to the original order save to clarify its original intent then it would be sufficient to effect the order's intent. see 950885
March 4, 1996
Ottawa Tax Services HEADQUARTERS
Client Assistance D. Zion
(613) 957-8953
Attention: Nicole Coté
960369
XXXXXXXXXX - Amended Court Order
This is in reply to your correspondence of January 22, 1996 and our subsequent discussions (Zion/Coté) regarding whether an amended court order can have retroactive effect to provide for the deductibility of third party mortgage and property taxes made in respect of the matrimonial home by your client for 1992, in the circumstances outlined below.
Facts:
The situation, as we understand it, can be summarized as follows:
XXXXXXXXXX
In order for a payment to a third party in respect of the mortgage and property taxes to be considered an allowance payable on a periodic basis, as required by paragraphs 56(1)(b) and 60(b) of the Act, it must meet the conditions set out in subsections 56.1(2) and 60.1(2) of the Act. One of those conditions requires that the court order or written agreement stipulate that the provisions of subsections 56.1(2) and 60.1(2) of the Act apply to the payments. In this regard, we agree with your view that the wording used in the 1992 court order does not satisfy that condition. However, the Department has taken a position that, where a court order which intends that certain amounts be taxable and deductible is lacking in the correct phrasing a further court order between the parties that incorporates the correct phrasing would be sufficient to effect the original order's intent. In the absence of such an amendment no request for a reassessment should be considered.
The issue to be addressed, in reviewing an amended court order to determine the taxability of the payments in question, is whether or not a court order which purports to clarify the intended meaning of a provision contained in an earlier order should be treated as a new order, to have effect from the date it is issued, or whether it can co-exist with the earlier order and have a retroactive application to payments that have already been made. Factors which would indicate that a second order can be treated as a clarification of the first order would include the fact that the substantive provisions of the first order were brought forward, the only additions would be in the nature of clarification of already existing provisions, the inclusion of a statement dealing with the taxability/deductibility of a previously provided-for payment and that the only intent of the order is to clarify certain provisions of the original order. In this case, the fact that the ex-spouse has agreed to an inclusion into income for 1992 of the amounts in question would serve as evidence of the original intent and that the proposed amending court order will only clarify that intent.
Generally, if parties subject to an amended court order fail to agree as to the intent of the original order thereby jeopardizing the effect of the amended order, then a section 174 reference to the Tax Court of Canada would be recommended in order to determine the issue.
We would, therefore, recommend in this case that if the parties obtain an amended court order that provides for retroactive effect and clarifies the intent as to the taxability of the mortgage and property tax payments provided for in item 5 of the original court order in keeping with the requirements of 60.1(2) and 56.1(2) of the Act then the Department should accept the claim.
We trust that our comments have been of assistance in resolving this issue.
J.A. Szeszycki
Section Chief
Personal and General Section
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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