17 June 1997 External T.I. 9705215 - CONTR TO A SPOUSAL RRSP NOT DEDUCTIBLE AS ALIMONY

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 payments into an estranged spouse's RRSP are deductible as alimony or maintenance

Position:

no but they may be deductible as a contribution to a spousal RRSP, subject to the contributor's RRSP room & the monthly tax on any "cumulative excess amount"

Reasons:

while 60.1(1) may deem the contribution to have been paid for the benefit of the spouse, a payment that is intended to equalize family assets is not on account of maintenance

A. Humenuk
XXXXXXXXXX 970521

Attention: XXXXXXXXXX

June 17, 1997

Dear XXXXXXXXXX:

Re: Alimony and Maintenance

We are replying to your letter of February 24, 1997, in which you ask whether payments for the purchase of registered retirement savings plans ("RRSP") for a spouse are deductible as alimony or maintenance where such payments are required under the terms of a separation agreement.

The particular circumstances outlined in your letter relate to a factual situation involving specific taxpayers. As explained in Information Circular 70-6R3 "Advance Income Tax Rulings", it is not our practice to comment on proposed transactions involving specific taxpayers, except by way of an advance income tax ruling. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. In addition, it should be noted that the tax consequences relating to payments required under a separation agreement cannot be determined without a complete review of all the relevant facts, including the entire separation agreement. Nevertheless, we offer the following general comments which may be of assistance to you.

The new rules regarding the tax treatment of support payments are contained in Bill C-92, which was passed by the House of Commons on April 21, 1997. The effect of these new rules, which generally apply to payments required to be made under agreements or orders made after April 1997, is that there is no income inclusion or deduction in respect of payments made for the support of children. However, spousal support continues to be included in the income of the recipient and deductible from the income of the payer. The distinction between amounts that are in respect of child support and other support amounts is contained in the definitions "support amount" and "child support amount" in new subsection 56.1(4) of the Income Tax Act (the "Act"). The definition "support amount", which incorporates the existing provisions of paragraphs 56(1)(b) and (c) and subsection 56(12) of the Act, requires amounts to be, inter alia, allowances paid on a periodic basis for the maintenance of the recipient or children. New paragraph 56(1)(b) of the Act requires the inclusion in income of the excess of support amounts over child support amounts, whereas new paragraph 60(b) provides a deduction to the payer that mirrors the income inclusion.

Therefore, in order for an amount paid to a spouse as a result of the breakdown of marriage to be deductible to the payer under paragraph 60(b) of the Act, the amount must, among other things, be paid as an allowance for the maintenance of the spouse. While it is a question of fact as to whether a particular amount is paid on account of maintenance, an amount paid for the purpose of equalizing family assets is not considered to be paid on account of maintenance. Since the excerpt of the written separation agreement you submitted indicates that no amount is payable by either spouse for the maintenance of the other and the relevant clause appears under the heading "Division of Family Assets", it is unlikely that the payments for the purchase of RRSPs in the circumstances described in your letter would be deductible by the payer under paragraph 60(b) of the Act. However, a deduction under subsection 146(5.1) of the Act may be available to the payer in respect of the payer's contribution to the spouse's RRSP, to the extent that the total amount of the contributions by the payer to his or her RRSP and to a spousal RRSP for that year do not exceed the payer's deduction limit for the year as defined in subsection 146(1) of the Act.

Please note also that a tax of 1% per month may be payable under Part X.1 of the Act by the contributor in respect of any excess contribution if the contribution results in a "cumulative excess amount", as determined under subsection 204.2(1.1) of the Act. In this respect, we refer you to paragraph 13 of Interpretation Bulletin IT-307R3, Spousal Registered Retirement Savings Plans.

We trust our comments will be of assistance to you.

Yours truly,

C. Chouinard
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch