2 February 1998 External T.I. 9728795 - CHILD SUPPORT PAYMENTS FROM A US RESIDENT

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 paragraph 6(b) of Article XVIII of the Canada-U.S. convention will continue to apply now that new rules for child support have been legislated.

Position:

Paragraph 6(b) will continue to apply to child support payments made under orders or agreements made before May, 1997. Orders or agreements providing for child support amounts made after April, 1997 will no longer need treaty protection to make the payments non-taxable.

Reasons:

The treaty provision continues to exist. The domestic legislation will make payments under the new child support provisions non-taxable.

972879
XXXXXXXXXX J.E. Grisé

February 2, 1998

Dear XXXXXXXXXX:

Re: Child Support Amount

This is in reply to your facsimile transmittal of October 27, 1997 concerning child support payments received from your former husband who resides in the United States of America.

Generally, child support payments from a court order or agreement made before May 1, 1997 are income to the recipient and deductible by the payer (the old rules). You have indicated that in past years you have included the child support payments received from your former husband as income and deducted a corresponding amount in arriving at your taxable income for those years. This tax treatment is as a result of the application of paragraph 6(b) of Article XVIII of the Canada-U.S. Income Tax Convention (1980) (the Convention). Under paragraph 6(b), Canada exempts from taxation the amount that would be excluded from taxable income in the United States if the recipient Canadian resident were a resident of the United States. We are not aware of any proposed change to this provision of the Convention. Accordingly, any child support payment that is required to be included in income by a Canadian resident under the old rules will continue to have an offsetting deduction where such a payment is received from a resident of the United States.

Where a court order or written agreement providing for child support payments is made on May 1, 1997 or later the child support payments are generally not to be included in the income of the recipient and the payer is not entitled to a deduction (the new rules). The new rules will also apply to agreements or orders existing prior to May 1, 1997 if, for example, they are amended to vary the amounts payable on or after May 1, 1997. In situations where the new rules apply, a child support amount received from a resident of the United States is not included in the recipient's income. As you discussed with Jacques Grisé, we are not in a position to provide you with information on the make up of the federal guidelines for child support payments. We understand that these guidelines were developed by the Department of Justice.

Yours truly,

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