23 February 1998 External T.I. 9801315 - CHILD SUPPORT PAYMENTS

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 child support payments made under a particular court order may be deducted by the payer.

Position:

No

Reasons:

Court order was made on December 19, 1997 and has no retroactive clause with respect to payments made prior to the order. Accordingly, the order has a commencement day and the new rules apply.

980131
XXXXXXXXXX J.E. Grisé

Attention: XXXXXXXXXX

February 23, 1998

Dear Sirs:

Re: Child Support Payments

This is in reply to your letters of January 15 and 26, 1998 concerning the tax implication of child support payments made pursuant to a court order made after April, 1997.

Child support payments made pursuant to an agreement or order that has a "commencement day" as defined in subsection 56.1(4) of the Income Tax Act (the Act), are non-deductible by the payer and not required to be included in income by the recipient (the new rules). Child support payments made pursuant to an agreement or order that has no defined "commencement day" will, generally, be deductible by the payer and required to be included in income by the recipient (the old rules). Paragraph (a) of the definition "commencement day" states that an agreement or order made after April 1997 will have a commencement day on the day the agreement or order is made. Paragraph (b) of the definition deals with the commencement day for an agreement or order made before May 1997 which would occur in situations such as where the parties elect to have the new rules apply or certain terms of the agreement or order are changed.

The provisions of paragraphs 56.1(3)(b) and 60.1(3)(b) of the Act may, in certain circumstances, be used to deem an agreement or order made after April 1997 to have been made before May 1997. The paragraphs apply to payments made after 1996, where a written agreement or order of a competent tribunal made at any time in a taxation year provides that an amount paid and received before that time and in the year or the preceding taxation year is to be considered to have been paid and received thereunder (retroactive provision). Paragraphs 56.1(3)(b) and 60.1(3)(b) of the Act deem the agreement or order with a retroactive provision to have been made on the day on which the first such amount was paid and received. Accordingly, an agreement or order made after April 1997 and before 1999 with a retroactive provision, may be deemed to have been made before May 1997 providing an amount was paid and received between January 1, 1997 and April 30, 1997. With the exception described below, an agreement or order deemed to have been made before May 1997 would not have a commencement day and would be subject to the old rules until, if ever, there is a commencement day pursuant to paragraph (b) of the definition "commencement day" in subsection 56.1(4) of the Act.

The exception mentioned above applies to an order or agreement made after April, 1997 that varies a child support amount payable to the recipient from the last such amount paid to the recipient before May, 1997. Paragraphs 56.1(3)(b) and 60.1(3)(b) of the Act would deem such an order or agreement to have a commencement day which is the day on which the first payment of the varied amount is required to be made.

The amounts paid and received in the year or the previous taxation year and before an agreement or order with a retroactive provision is made are deemed, pursuant to paragraphs 56.1(3)(a) and 60.1(3)(a) of the Act, to have been paid and received under the agreement or order.

With respect to the Judgment of December 19, 1997 submitted with your first letter, we are of the opinion that it is an order of a competent tribunal with a commencement day of December 19, 1997. Child support payments made under the order would be subject to the new rules. The tax consequence of an amount received does not arise merely because a court order has so stipulated such as in paragraph 3 of the December 19, 1997 court order. A payment made pursuant to an order becomes deductible, not because the order so stipulates, but rather, because it meets the criteria for deductibility set out in the relevant provisions of the Act. Similarly, a payment becomes income in the hands of the recipient if the payment satisfies the criteria set out in the relevant provisions of the Act at the time of payment.

We hope our comments are helpful.

Yours truly,

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