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:
Where a court order or agreement is made before May 1997 and child support amounts are otherwise deductible, the agreement will be considered to have a “commencement day” if the order or agreement is varied after April 1997 to increase or decrease the child support amounts payable (subparagraph 56.1(4)(b)(ii)). Is this subparagraph applicable if a pre-May 1997 agreement includes a term for a cost of living increase?
Position:
Subparagraph 56.1(4)(b)(ii) is not considered to be applicable.
Reasons:
It is the Department’s position that an agreement or order made before May 1997 has not been varied where an increase or decrease in child support amounts payable is automatic and is built into the agreement or court order.
971715
XXXXXXXXXX M. Eisner
February 12, 1998
Dear XXXXXXXXXX:
Re: Child Support - Cost of living Clause
This is in reply to your letter of June 24, 1997, concerning the deductibility of child support payable by you. We apologize for the delay in replying.
You have enclosed pages 6 and 7 of a separation agreement (the Agreement) between yourself and your former spouse, who lives in British Columbia. The Agreement provides that you are to pay monthly support to your former spouse of $XXXXXXXXXX for each child commencing on August 1, 1990. The Agreement also provides that the monthly support for each child is to increase on July 1 of each subsequent year based on the annual cost of living index for Vancouver (i.e., the “all items” cost of living index), determined by Statistics Canada at the end of May for the year in which adjusted payments will commence to be made. As well, the increased quantum of maintenance for each year is to be confirmed in writing as set out in “Schedule “D”. You have attached two copies of Schedule “D” with the first copy relating to the time period from July 1, 1996 to June 1, 1997 and the other copy relating to the time period from July 1, 1997 to June l, 1998. The first copy indicates that you were to pay your former spouse the monthly amount of $XXXXXXXXXX and the second copy indicates that you were to pay your former spouse the monthly amount of $XXXXXXXXXX.
You have indicated that your concern relates to the “Support Payments Information Sheet” (T1156) issued by this Department, which indicates that the new regime will apply to an order or agreement made before May 1997 if “The order or agreement is changed on or after May 1, 1997, to increase or decrease the amount of child support payable.” As a result of the comments in the Information Sheet, you have asked us whether the cost of living adjustment (COLA) clause in paragraph 5(2) of the Agreement is a “change” with the result that the child support payments made from July 1, 1997 will be non- deductible.
Generally, under the new regime, payments of child support amounts under an agreement or a court order are not deductible by the payer. The new regime applies to an agreement or order if the agreement or court order has a “commencement day” which is defined in subsection 56.1(4) of the Income Tax Act and is a day after April 1997. Your concern relates to the comment in the Information Sheet that, if a court order or agreement is made before May 1997 and child support amounts are otherwise deductible, the agreement or court order will be considered to have a commencement day if the order or agreement is varied after April 1997 to increase or decrease the child support amounts payable.
It is our view that an agreement or court order made before May 1997 has not been varied where there is a COLA provision in the agreement to automatically increase child support amounts payable. Accordingly, there would not be a commencement day as a result of a COLA, in itself. Therefore, to the extent you are otherwise entitled, you may claim the increased amounts under paragraph 60(b) of the Income Tax Act.
We trust that our comments will be of assistance to you.
Yours truly,
John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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