27 June 1996 External T.I. 9610985 - ALIMONY AND MAINTENANCE RECEIVED BY AN INDIAN

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:

Are the residence of the payor and the type of income earned by the payor (i.e., exempt or non-exempt) factors that are relevant in determining the tax status of alimony and maintenance income received by a status Indian?

Position TAKEN:

No, it is our present view that alimony and maintenance income will be exempt only if the recipient lives on a reserve.

Reasons FOR POSITION TAKEN:

Position taken in previous files and based on the approach adopted in Williams. There is no direct connection between the payor's income and the periodic payments of alimony and maintenance and, therefore, the tax status of the payor's income is not a factor relevant in determining whether alimony and maintenance income received should be exempt. The residence of the payor is also irrelevant (this is consistent with the decision in Williams).

								5-961098

XXXXXXXXXX						M. Azzi

Attention: XXXXXXXXXX

June 27, 1996

Dear Sirs:

Re: Alimony and Maintenance Received by a Status Indian

This is in reply to your letter of March 14, 1996, wherein you requested clarification regarding the factors considered in determining the tax treatment of alimony and maintenance income received by a status Indian. In particular, you inquire whether the residence of the payor and the type of income earned by the payor (i.e., exempt or non-exempt) are factors that are relevant to such a determination.

Our Comments

Paragraph 87(b) of the Indian Act exempts from taxation the personal property of an Indian or band situated on a reserve. The courts have taken the view that the reference to personal property would include the income of an Indian.

Prior to 1992, the situs of the debtor would, pursuant to the decision in Nowegijick (83 DTC 5041), determine the taxability of alimony and maintenance payments to recipients. Where the payor lived on reserve, it was the Department's view that the alimony payments received by a recipient would be tax exempt.

In the 1992 Williams case (92 DTC 6320), however, it was concluded by the Supreme Court of Canada that the situs of the debtor was not the proper test to determine whether a specific source of income should be considered to be connected to a reserve. As a result, it is our present view that alimony and maintenance income will be exempt only if the recipient lives on a reserve. That is, in our view, the most significant factor that would serve to connect alimony and maintenance income to a location on reserve or off reserve is the location of the recipient's residence.

In our view, there is no direct connection between the payor's income and the periodic payments of alimony and maintenance and, therefore, the tax status of the payor's income is not a factor relevant in determining whether alimony and maintenance income received should be exempt. It is also our view that the residence of the payor is irrelevant. This is consistent with the decision in Williams which, as indicated above, determined that the residence of the debtor should not be viewed as being of primary importance, since to do so would be to inappropriately rely on general conflict of laws principles.

We trust that these comments will be of assistance.

Yours truly,

R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch