30 November 1996 Ruling 9707173 - PAYMENT OF PROPERTY SETTLEMENT BY INSTALLMENTS

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:

payment of property settlement by installments

Position:

not taxable or deductible as maintenance

Reasons:

payment made to ensure recipient has sufficient capital for her retirement

XXXXXXXXXX                                      970717

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX

We are replying to your letters of XXXXXXXXXX, in which you ask for an advance income tax ruling in respect of the proposed matrimonial settlement between your client and her spouse.

Our understanding of the facts and proposed transactions is as follows;

Facts

XXXXXXXXXX (the recipient) married XXXXXXXXXX (payer) on XXXXXXXXXX. They have been living separate and apart by reason of a marriage breakdown since XXXXXXXXXX.

During the course of their marriage, the payer XXXXXXXXXX. The recipient was employed as a XXXXXXXXXX until the birth of their first child. In the period XXXXXXXXXX, the recipient was obliged to collapse her pension fund in order to pay for family expenses. At that time, the recipient had a reasonable expectation from the marriage that she would benefit during the course of her lifetime from the income derived from the payer's XXXXXXXXXX. However, as a result of the marriage breakdown, it is presently forecast that the recipient's expected retirement capital is deficient by $XXXXXXXXXX in order to provide her with sufficient retirement income to meet her needs.

In XXXXXXXXXX which resulted in the loss of substantially all of his financial capital.

XXXXXXXXXX

The recipient is currently employed as a XXXXXXXXXX and has no present need of maintenance from the payer.

To the best of your knowledge, none of the issues involved in this request is presently being considered by a tax services office or taxation centre in connection with a tax return already filed nor are any of the issues under objection or appeal.

Proposed Transactions

The recipient and payer intend to obtain a divorce. They further intend that there shall be a complete and final settlement of their respective rights and obligations arising from the marriage.

Under the proposed Minutes of Settlement, the payer will pay $XXXXXXXXXX to the recipient as a property settlement. However, because the payer has insufficient capital at this time to make the required payment, the proposed Minutes of Settlement provide that the payer will make annual installments towards the payment of the balance outstanding of at least $XXXXXXXXXX until the full amount has been paid. The payer may prepay any part of the outstanding balance at any time. At each anniversary, the balance outstanding will be indexed to the inflation rate as established by the Consumers Price Index for the place of residence in Canada of the recipient or XXXXXXXXXX, if she is not resident in Canada.

Provided that the schedule of payments is not in default, interest is not payable on the outstanding balance. In the event of default however, the balance outstanding becomes due and payable immediately and interest accrues on that balance at a rate of XXXXXXXXXX% per annum.

The proposed Minutes of Settlement do not provide for any payment of maintenance to the recipient since the recipient's income from employment is sufficient to meet her needs. However, the recipient will reserve her right to maintenance until such time as the payment described in paragraph 7 has been paid in full, at which time the payer will be fully released from any potential liability for the payment of maintenance or further amounts of capital to the recipient.

The parties intend that XXXXXXXXXX, will not apply and that the proposed Minutes of Settlement will be an agreement as set out in section XXXXXXXXXX of that Act.

Purpose of the Proposed Transactions

The purpose of the proposed payments is to augment the recipient's retirement capital and to provide for a full and final settlement of property between the parties.

Rulings Given

Provided that the above facts and proposed transactions are accurate and constitute complete disclosure of all the relevant facts and proposed transactions, that the executed Minutes of Settlement are substantially the same as the draft Minutes of Settlement submitted with your letter of XXXXXXXXXX, and that the transaction is carried out as described herein, we confirm that;

except as noted in ruling B, amounts to be received by the recipient from the payer as described in paragraph 7 above, are not included in the income of the recipient under paragraph 56(1)(b) or (c) of the Act or under any other provision of the Act,

amounts received by the recipient from the payer as interest as described in paragraph 3(e) of the Minutes of Settlement is included in income under paragraph 12(1)(c) of the Act, and

amounts paid to the recipient by the payer are not deductible in computing the income of the payer under paragraph 60(b) or (c) of the Act or any other provision of the Act.

This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada, and is binding on the Department provided the Minutes of Settlement are executed on or before XXXXXXXXXX.

Yours truly,

Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch