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 amount of "social assistance" received from the province should be re-characterized as alimony or maintenance. Social assistance recipient assigned all right to receive alimony to the province as a precondition to receiving social assistance

Position:

cannot recharacterize. The recipient received social assistance to which s/he was entitled under the social assistance legislation. On basis of Bishop (XXXXXXXXXX), no deduction to payor as the payments to the province in this situation (assignment or subrogation of rights) are not on behalf of or for the recipient's benefit.

Reasons:

XXXXXXXXXX jurisprudence

		January 24, 1997

	Hamilton Tax Services Office	HEADQUARTERS
	Verification and Enforcement	Sandra Short
	Office Examination	(613) 957-2136

	Attention:  Allyson Grady
		962242

Assignment of rights to receive alimony/maintenance

This is in reply to your memorandum of June 19, 1996, which asks whether a portion of a social assistance amount should be taxed in a client's hands as alimony or maintenance. The client was required to assign all rights to support payments to the Ministry of Community and Social Services (MCSS) as a precondition to the receipt of social assistance. We apologize for the unavoidable delay in replying to you.

Background:

1.The client's former spouse (the payor) is required to pay the client $XXXXXXXXXX per month per child under the terms of a support Order, effective XXXXXXXXXX. The order is dated XXXXXXXXXX.

2.In a letter XXXXXXXXXX, the Ministry of the Attorney General of the Province of Ontario advised the payor that an "Initial Support Deduction Notice" had been sent to the employer.

3.XXXXXXXXXX, the MCSS advised that the Order had been assigned to them and that all payments pursuant to the Order were to be made to the Director, Family Support Plan. The payor's employer was already garnishing the payor's wages and remitting the sum to the Director of the Family Support Plan.

4.The client applied for, and received, social assistance in XXXXXXXXXX (the assignment of rights to alimony and maintenance was required for eligibility to that social assistance). The amount received by the client from MCSS was determined by examining the needs of the client. The amount paid by MCSS exceeded the amount of alimony and maintenance under the terms of the XXXXXXXXXX order. MCSS obtained the assignment of the support payments on or about XXXXXXXXXX.

5.The payor claimed a deduction for alimony or maintenance paid for the taxation years XXXXXXXXXX.

6.The client reported all amounts received from MCSS, reported on form T5007, as social assistance income and not as alimony or maintenance income.

Our Comments

It is our opinion that the income received by the client from MCSS is properly characterized as social assistance payments. No portion of the amount received, after the assignment of the right to receive alimony or maintenace, should be recharacterized as alimony or maintenance amounts. It is also our view that, as a result of the assignment of the rights of the client to receive alimony or maintenance to the MCSS, no deduction can be permitted to the payor under paragraph 60(b) or (c) of the Act, for the reasons discussed in the Bishop decision (Bishop v. M.N.R. 93 DTC 333).

In Bishop, the Tax Court had to decide if an amount paid by William Bishop to the Treasurer of Ontario in 1988 was deductible by him in computing his income and whether the amount should be included in Carol Bishop's income. Mr. Bishop paid arrears of support to the MCSS because that Ministry started a garnishment proceeding against him because of his failure to make support payments as required under the terms of the decree nisi. The right to support payments was assigned by Carol Bishop at the time she applied to receive social assistance. Mr. Bishop and the Treasurer of Ontario settled the garnishment proceedings by the MCSS agreeing to withdraw the proceedings if Mr. Bishop paid the amount due. The Court found that the amount was not income to Carol Bishop because she neither actually received nor indirectly benefited from the payment. The Court also decided that the payment was not deductible by William Bishop because the payment to the MCSS was not paid on behalf of Carol Bishop nor was it for her benefit under the decree nisi. Rather, the payment was made to discharge his indebtedness to the Ministry which arose in consequence of the decree nisi rather than under it, within the meaning of paragraph 60(b) of the Act.

As in the Bishop case, the client's right to receive social assistance arises from the Ontario social assistance legislation and not from the act of assigning rights under the Order even though such assignment is necessary. The Bishop case would be the authority to conclude that the client has not "received" support payments within the meaning of paragraph 56(1)(b) or (c) of the Act. And, for the reasons cited by the court, namely that payment to the MCSS by the payor is not on behalf of the client nor for the client's benefit, no alimony or maintenance deduction is available to the payor.

We hope these comments are helpful.

John F. Oulton
Section Chief
Business, Property & Personal Section
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch