20 June 1996 External T.I. 9609205 - PREPAYMENT IN PREVIOUS YEAR OF ALIMONY OR 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.

Rulings Summary

Principal Issues:

Deductibility of payments under paragraph 60(b) or (c) where the payor has paid the periodic maintenance in the year prior to which it is due.

Position:

Not deductible in year paid nor in year it was payable.

Reasons:

	To be deductible under paragraphs 60(b) and (c) the 	amount paid by the taxpayer must be an "allowance 	payable on a periodic basis."  According to Black's Law 	Dictionary, sixth edition, "payable" is defined as 	"....justly due; legally enforceable.  A sum of money is 	said to be payable when a person is under the obligation 	to pay it."   Therefore, voluntary prepayment of an 	amount not yet due is not deductible since it was not 	payable at the time (the year) it was paid. The 	voluntary prepayment would also not be deductible in the 	year that it was actually payable because it was not 	paid by the taxpayer in the year, as required by 	paragraphs 60(b) and (c) of the Act.

		960920
XXXXXXXXXX	D. Zion

Attention: XXXXXXXXXX

June 19, 1996

Dear Sirs:

Re: Subsection 60(b) and (c) of the Income Tax Act (the "Act")

This is in reply to your letter of March 7, 1996, and our subsequent telephone conversations (Zion/XXXXXXXXXX), regarding the deductibility of a particular payment pursuant to paragraph 60(b) or (c) of the Act. We apologize for the delay in our response.

As we understand the situation, an individual is obligated, pursuant to a written agreement and court order, to pay his former spouse a monthly allowance for the maintenance of the children of the marriage. You have advised us that the payments provided for in the written agreement and court order meet the requirements noted in paragraph 5 of Interpretation Bulletin IT-118R3, Alimony and Maintenance. The payments are due and normally made on the first day of the month; however, on one occasion the client paid this monthly allowance in the year prior to which it was actually payable. Based on the reasoning of the Federal Court of Appeal in The Queen v Sills (85 DTC 5096), you are of the view that the payment in question should be deductible to the payor either in the year in which it was due, or in the year it was actually paid.

Our Comments

One of the conditions which must be satisfied in order for an amount to be deductible under paragraphs 60(b) and (c) of the Act, is that the amount paid by the taxpayer must be an "allowance payable on a periodic basis." According to Black's Law Dictionary, sixth edition, "payable" is defined as "....justly due; legally enforceable. A sum of money is said to be payable when a person is under the obligation to pay it."

The subtlety in the wording of these paragraphs distinguishes between "paid" and "payable". The amount paid does not necessarily have to be paid periodically to be deductible as long as the allowance provided for in the order or agreement is an allowance payable on a periodic basis. Consequently, an amount may still be considered to be "payable on a periodic basis" even when the payment is made late and is in the form of one cheque which includes several periodic payments. As a result, the Department generally takes the position that lump sum payments made on account of amounts that were payable on a periodic basis pursuant to a court order, but that have fallen into arrears, would be deductible. This position is in keeping with the decision by the Federal Court of Appeal in Sills which was concerned with the taxability of lump sum arrears payments.

Accordingly, it is our view that a voluntary prepayment of an amount not yet due is not deductible since it was not payable at the time it was paid. The voluntary prepayment would also not be deductible in the year that it was actually payable because it was not paid by the taxpayer in the year, as required by paragraphs 60(b) and (c) of the Act.

We trust the foregoing clarifies our position on the issues you have raised.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch