8 August 1997 External T.I. 9719345 - POST-APRIL 1997 CHANGE IN CHILD SUPPORT

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:

1. Will the new rules regarding child support payments apply, if the global child and spousal support payable of $XXXXXXXXXX per month, under a 1995 court order, is now (i.e, after April 1997) changed such that $XXXXXXXXXX per month is established as being solely for the support of the spouse and $XXXXXXXXXX per month is in respect of child support (for the same total of $XXXXXXXXXX per month)?

2. For purposes of establishing whether the new rules apply, is the date of the verbal agreement, to the above-noted change in child support amount, relevant?

Position TAKEN:

1. The change would trigger the application of the new rules.

2. No.

Reasons FOR POSITION TAKEN:

1. The term "child support amount" is defined in subsection 56.1(4) as "any support amount that is not identified in the agreement or order under which it is receivable as being solely for the support of a recipient who is a spouse or former spouse of the payer or who is a parent of a child of whom the payer is the natural parent." Accordingly, the child support amount payable pursuant to the court order of XXXXXXXXXX is $XXXXXXXXXX per month. If after April 1997 the court order is varied or a subsequent agreement or order is made, such that $XXXXXXXXXX per month is established as being solely for the support of the taxpayer's spouse and $XXXXXXXXXX per month is in respect of child support, the "child support amount" would change to $XXXXXXXXXX per month. This post-April 1997 change in child support amount would create a "commencement day" as defined in subsection 56.1(4).

2. The definition of "support amount" in subsection 56.1(4) specifically requires, inter alia, that the amount be receivable under an order of a competent tribunal or under a written agreement. Thus, the fact that the parties may have verbally agreed to the above-noted change in child support amount prior to May 1, 1997 is irrelevant for purposes of establishing a "commencement day" as defined in subsection 56.1(4). The comments in paragraph 5 of IT-118R3, Alimony and Maintenance, are relevant in this respect. That is, informal writings such as correspondence and memoranda between husband and wife, or between their respective solicitors, are not to be considered a valid written agreement.

	                         		3-971934
XXXXXXXXXX		                            M. Azzi

Attention: XXXXXXXXXX

August 8, 1997

Dear Madam:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

This is in reply to your letter of July 15, 1997, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayer. Your request concerns child and spousal support payments, and the implications of the recent amendments (contained in Bill C-92, assented to on April 25, 1997) to the Income Tax Act (the "Act") relating to the tax treatment of support payments.

We understand that the above-noted taxpayer has been separated from his spouse since XXXXXXXXXX. An order of the Ontario Court (General Division), dated XXXXXXXXXX, provides that the taxpayer's spouse has interim custody of their three children. Furthermore, the order provides that the taxpayer pay $XXXXXXXXXX per month to his spouse as global interim support for herself and the children, commencing XXXXXXXXXX. We understand that, although no formal variation was made to the order, the oldest child has been residing with the taxpayer since XXXXXXXXXX and that the parties are content that this child remain with the taxpayer, while the other two children remain with the taxpayer's spouse. The parties are now involved in divorce proceedings and wish to maintain support payments of $XXXXXXXXXX per month; however, they wish to formally distinguish between child support and spousal support (the child support would be in the amount of $XXXXXXXXXX per month per child for a total of $XXXXXXXXXX per month, and the spousal support would be in the amount of $XXXXXXXXXX per month). In this respect, the ruling request contains three alternative courses of action.

Our Comments

In accordance with paragraph 15(d) of Information Circular 70-6R3 dated December 30, 1996, we refuse to rule in circumstances involving alternative courses of action. As this applies to the transactions described in your request, we cannot issue an advance ruling, and your deposit will be returned to you under separate cover. We can, however, offer the following general comments.

The basic thrust of the new child support provisions is to eliminate both the requirement to include child support in the custodial or recipient parent's income and the deduction available to payers of child support. Generally, the new rules apply to agreements or court orders made on or after May 1, 1997. However, by virtue of the definition of "commencement day" in subsection 56.1(4) of the Act, the new rules will apply to child support amounts paid under the terms of an agreement or order made before May 1, 1997 if:

1.the parties both sign and file an election with the Department agreeing that the new tax rules will apply to the existing order or agreement after a specified date (no earlier than May 1, 1997),

2.the parties change the child support amounts payable to the recipient by amending the agreement or court order after April 1997,

3.another agreement or order is made after April 1997 and the effect of the subsequent agreement or order is to change the total child support amounts payable to the recipient by the payer, or

4.the order or agreement specifically provides that the new tax rules will apply after a specific date (no earlier than May 1, 1997).

The term "child support amount" is defined in subsection 56.1(4) of the Act as "any support amount that is not identified in the agreement or order under which it is receivable as being solely for the support of a recipient who is a spouse or former spouse of the payer or who is a parent of a child of the whom the payer is the natural parent." Accordingly, the child support amount payable pursuant to the above-noted court order of XXXXXXXXXX is $XXXXXXXXXX per month. However, if after April 1997 this court order is varied or a subsequent agreement or order is made, such that $XXXXXXXXXX per month is established as being solely for the support of the taxpayer's spouse and $XXXXXXXXXX per month is in respect of child support, the "child support amount" would change to $XXXXXXXXXX per month, which would trigger the application of the new rules as explained above.

It should also be noted that the definition of "support amount" in subsection 56.1(4) of the Act specifically requires, inter alia, that the amount be receivable under an order of a competent tribunal or under a written agreement. Thus, the fact that the parties may have verbally agreed to the above-noted change in child support amount prior to May 1, 1997 is irrelevant for purposes of establishing a "commencement day" as defined in subsection 56.1(4) of the Act. The comments in paragraph 5 of IT-118R3, Alimony and Maintenance, are relevant in this respect. That is, informal writings such as correspondence and memoranda between husband and wife, or between their respective solicitors, are not considered a valid written agreement.

We trust that these comments will be of assistance.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch