19 August 1996 External T.I. 9618095 - MAINTENANCE PAYMENTS

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:

Taxability/deductibility of amounts received/paid pursuant to an interim separation agreement in two scenarios provided by writer.

Position:

The taxability/deductibility of payments vary depending on the actual terms of the court order. The courts have considered the situation where the governing document (decree, order or judgement of a competent tribunal or a written agreement) provides that the payer must pay the tax payable on the allowance in addition to the allowance itself, and determined that the tax payable will be considered part of the allowance and will be deductible as well.

Third party payments may qualify provided that the provisions of described in subsections 60.1(2) and 56.1(2) of the Act are met.

There is the possibility of a deduction as a medical expense, of the tuition costs. This will be a question of fact, individual determination required. Insufficient info provided to make any more than general comments.

Reasons:

									961809
XXXXXXXXXX							D. Zion

Attention: XXXXXXXXXX

August 19, 1996

Dear Sirs:

Re: Maintenance Payments

This is in reply to your letter of May 16, 1996, in which you request our position regarding the tax treatment applicable to certain payments by an individual pursuant to a Court Order.

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, we offer the following general comments concerning the payments outlined in the two examples you have provided to us.

In the first example, the taxpayer is required to pay a monthly maintenance amount to his former spouse pursuant to a Court ordered interim separation. The divorce was finalized in September 1995 and we have assumed, for the purposes of our discussion, that the interim separation agreement is still binding. The Court Order requires that the taxpayer be liable and pay any income taxes that his former spouse will be required to pay as a result of her receipt of the maintenance amounts.

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. Assuming that these conditions have been met in your first situation, then the monthly maintenance payments would be deductible to the payer. The courts have considered the situation where the governing document (decree, order or judgement of a competent tribunal or a written agreement) provides that the payer must pay the tax payable on the allowance in addition to the allowance itself, and determined that the tax payable will be considered part of the allowance and will be deductible as well. We would mention that such payment(s) would be deductible even when the payer makes the payments directly to the Receiver General on the former spouse's behalf.

Your second example concerns the deductibility of payments for tuition costs of the child who lives with the former spouse. You advise that the child is in attendance at a private school due to special needs. Whether or not these payments are deductible as maintenance or alimony will depend on the circumstances under which they are paid. The amount would not be deductible by the taxpayer if the payment thereof is not pursuant to the Court Order. If the payments are made pursuant to the Court Order, being third party payments for a specific purpose, they must meet the conditions described in subsections 60.1(2) and 56.1(2) of the Act in order to be deductible to the payer and taxable to the recipient. One of the conditions is a specific reference, within the court order itself, to the application of these provisions. An example is provided in paragraph 18 of Interpretation Bulletin IT-118R3, which we have enclosed for your information.

Please note that in certain instances, tuition fees paid to a particular institution may qualify as a medical expense for purposes of a medical expense tax credit. A case by case determination is required to ascertain whether a particular individual meets all the criteria of paragraph 118.2(2)(e) of the Act including the requirement that the individual "required the equipment, facilities or personnel specially provided by that school, institution or other place for the care, or the care and training, of individuals suffering from the handicap suffered by the patient". In addition, the individual must be certified by an appropriately qualified person to be a person who, by reason of mental or physical handicap, so requires the equipment, facilities or personnel specially provided by the school, institution or other place. A reference to an "appropriately qualified person" includes a medical practitioner as well as any other person who has been given the required certification powers under provincial or federal law. In this regard, we have enclosed a copy of Interpretation Bulletin IT-519R, and direct you to paragraphs 32 and 33 which discuss this issue in further detail.

We caution you that these comments represent our opinion of the law as it applies generally and, as stated in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department. Nevertheless, we trust you will find our comments of assistance. If you require clarification of the deductibility of payments in a particular situation, your request should be forwarded to the local tax services office and accompanied by all the relevant documentation including court orders and agreements.

Yours truly,

J.A. Szeszycki
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch