5 March 1996 External T.I. 9604225 - LIFE INSURANCE PREMIUMS AS ALIMONY

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:

deductibility of life insurance premiums on the life of payer as alimony or maintenance

Position:

as a third party payment which is not at the discretion of the recipient and is not an ordinary living expense of the recipient, it is not deductible

Reasons:

it is not an allowance so the deeming provision of 60.1(1) is not sufficient to make the payment deductible and since it is not on account of maintenance, it is not an expense contemplated by 60.1(2)

A. Humenuk
XXXXXXXXXX			960422

March 6, 1996

Dear Sir:

Re: Alimony and Maintenance

We are replying to your letter received January 25, 1996 concerning the deductibility of life insurance premiums required to be paid under a separation agreement.

We are not prepared to offer comments on your specific situation since the tax implications pertaining to an existing arrangement can only be determined after a review of all the relevant facts and documentation. As a review of this type is the responsibility of the local Tax Services Offices, you may wish to submit all the relevant facts and documentation to the Belleville Tax Service Office for their review. Please note that such a review would require the entire separation agreement and not merely an excerpt from it. Nevertheless, we offer the following general comments which may be of assistance to you.

As explained in the enclosed Interpretation Bulletin IT-118R3 "Alimony and Maintenance" but subject to the following modification, paragraph 60(b) of the Act permits an individual to deduct an amount paid as alimony or other allowance to the individual's estranged spouse or former spouse where the conditions set out in paragraph 2 of that bulletin are met. In applying the condition set out in paragraph 2(b) of IT-118R3 to a breakdown of marriage occurring after 1992, it is not crucial that the court order or written agreement state that the spouses have agreed to live separate and apart. However the facts must show that they are living separate and apart at the time the payment is made and that they continue to do so for the remainder of the year.

Since paragraph 60(b) of the Act requires that the amount be paid to a spouse or former spouse, a payment to a third party will only qualify for the deduction if either subsection 60.1(1) or 60.1(2) applies to the payment. Subsection 60.1(1) of the Act deems certain amounts paid to third parties to have been paid to the spouse or former spouse on behalf of whom the payment was made and subsection 60.1(2) deems certain amounts set out in that subsection to have been paid to and received by that other spouse or former spouse as an allowance payable on a periodic basis.

Subsection 60.1(1) of the Act is applicable to the situation where an amount is paid to a third party on behalf of the recipient spouse, children of the recipient or both and is explained in paragraphs 15 to 17 of the bulletin. It is important to note that this provision does not operate to recharacterize an amount paid to a third party as an allowance. As explained in paragraph 6 of the bulletin, an amount is not considered to be an allowance unless the recipient has discretion as to the use of the funds. In order for an individual to have discretion as to the use of an amount paid to a third party, the individual must have the ability to redirect the payment to some other purpose at any time.

While the application of subsection 60.1(2) of the Act to a particular payment means that fewer of the other criteria need be considered in determining whether the amount may be deducted under the alimony and maintenance provisions, subsection 60.1(2) is only applicable where the decree, order, judgement or written agreement specifically stipulate that both subsections 60.1(2) and 56.1(2) of the Act are to apply to the amounts in question.

It should also be noted however, that the expenses referred to in subsection 60.1(2) of the Act are limited to those expenses which are incurred in the maintenance of the spouse, former spouse or children in the custody of that spouse or former spouse. While insurance on the life of the payer may provide a degree of assurance that the estranged spouse will be provided for in the event of the payer's death, premiums payable on such a policy would not ordinarily be considered a personal living expense of the estranged spouse. For this reason, it is our view that the premiums paid to insure the life of the payer would not likely be an expense which is eligible for the treatment described in paragraphs 18 and 19 of the bulletin.

We trust our comments will be of assistance to you.

Yours truly,

J.A. Szeszycki
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
c.c. Belleville Tax Service office