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 any flexibility in 118(5) to allow client choice of not deducting alimony/maintenance and then to claim equivalent to married under 118(1)(b)
Position:
cannot claim 118(1)(b) amount
Reasons:
118(5) deeming provision is triggered by individual's "entitlement" to an alimony or maintenance ded'n under 60(b), (c) or (c.1) in the year and not by whether a deduction is actually taken or only nominally taken. see also 940341 and 941069
September 13, 1996
Saint John Tax Services Office HEADQUARTERS
Client Services Sandra Short
(613) 957-8953
Attention: Debbie Brien
or Beth Roy
962406
Subsection 118(5) of the Income Tax Act
This is in reply to your letter dated July 5, 1996, which asks whether an individual may choose to claim an amount for a wholly dependent person under paragraph 118(1)(b) when the individual is entitled to a deduction for maintenance or support paid under paragraphs 60(b), (c) or (c.1) for that dependent person. You have asked that we consider this question in the following context.
An individual became separated from his spouse in 1992 and the original separation agreement stated that he was required to pay $750 per month as child support for his three children. The agreement was not structured to allocate the payments between or among the children. It appears also that the agreement is silent as to how the obligations of the individual would change if the custody arrangements of the children altered.
The individual's oldest child began to live with him in or around January, 1993. Because his child has been residing with him, the individual has been claiming the equivalent to married amount for this child, under paragraph 118(1)(b) of the Act. He continued to pay and deduct the full amount of support or maintenance required to be paid by him under the original separation agreement. In July of 1995, these payments were reduced to $600 per month for the two children remaining in his spouse's care. The individual has cited prohibitive legal costs as the reason for not amending the original agreement before this time.
The paragraph 118(1)(b) amount has been disallowed and the individual is now asking whether there is sufficient flexibility in the application of subsection 118(5) of the Act to permit him to chose to claim the equivalent to married amount for the child residing with him in 1994 and to reduce the amount claimed by him for that year as alimony or maintenance to $600.00 per month (rather than the $750 required to be paid and actually paid at that time).
The wording of subsection 118(5) of the Act is clear that when an individual "is entitled" to a deduction, in the year, under paragraph 60(b), (c) or (c.1) for a payment for the maintenance of a spouse or child, that that spouse or child is deemed not to be the spouse or child of the individual for the purposes of section 118. It is our opinion that, because the deeming provision is triggered by the individual's entitlement to an alimony or maintenance deduction under paragraph 60(b), (c) or (c.1), and not by the individual actually claiming an alimony or maintenance deduction under these provisions, there is no legislative authority to permit a client to choose the most advantageous deduction or amount.
We have read the closing comments in Gifford v. MNR, 91 DTC 953, and note that the remarks appear to be merely contemplative and T.C.J. Mogan concludes that "whether such opportunity exists would have to be tested in a particular set of circumstances." As the situation outlined above is not similar to the hypothetical and somewhat vague situation being discussed in the closing thoughts of Gifford, we have not attempted to decipher which set of hypothetical circumstances could or would result in a more advantageous tax situation.
John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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