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:
A taxpayer is paying child support to his spouse in respect of four children pursuant to a court order made before May 1997. The taxpayer is required to pay support in respect of each child as long as the particular child can be regarded as being a “child of the marriage” pursuant to the definition of this term in the Divorce Act (1985) Canada (the Divorce Act). This definition refers to “a child of two spouses or former spouses who, at the material time, is sixteen years of age or over and under their charge but unable, by reason of illness, disability or other cause, to withdraw from their charge or to obtain the necessaries o life.” The taxpayer’s son is XXXXXXXXXX of age and attends university on a full-time basis. The taxpayer feels that the spouse may be using the support paid in respect of him for her own benefit as he is using student loans for his support. The taxpayer also has a XXXXXXXXXX daughter that is employed on a full-time basis. The taxpayer proposes to apply for a court order to modify the original order on the basis that the spouse is not using child support for the benefit of the son and that the daughter is no longer a child of the marriage. In the alternative, the modified court order may specify that support amounts paid in respect of the son be paid to the son by the spouse.
The issue is whether the initial order will have been varied with the result that there would be a commencement day (subparagraph 56.1(4)(b)(ii)).
Position:
With respect to the daughter, the revision could result in a commencement day. In the case of the son, a variation would occur. This would also be the case with respect to the second alternative concerning the son.
Reasons:
It is the Department’s general position that revisions to a court order does not result in a variation where there is an increase or decrease in child support amounts payable that is automatic and is built into the agreement or court order. In the case of the daughter, the circumstances in which she would cease to be a child of the marriage do not seem to be clear as a result of he definition of “child of the marriage.” In the case of the son, a variation would occur because there is no provision in the initial order with respect to the revision. Similarly, if the spouse were required to redirect the payments to the son there would be a variation as the child support amounts would have been varied (i.e., she would have no discretion as to the use of the support paid in respect of the son).
XXXXXXXXXX 980237
M. Eisner
April 6, 1998
Dear XXXXXXXXXX:
Re: Child Support
This is in reply to your letter of January 12, 1998, concerning the deductibility of child support payable by you.
In your situation, the Ontario Court (General Division) issued a judgment on XXXXXXXXXX that confirmed an arbitrator’s findings with respect to the outstanding differences between you and your estranged wife. That judgment provided that you were to pay your spouse the monthly amount of $XXXXXXXXXX ($XXXXXXXXXX in respect of each of your four children). The payment of the monthly amount of $XXXXXXXXXX in respect of each child was to continue for as long as the particular child could be regarded as being a “child of the marriage” pursuant to the definition of this term in the Divorce Act (1985) Canada (the “Divorce Act”).
One of your children, XXXXXXXXXX has not been engaged in full-time attendance at an educational institution since XXXXXXXXXX. She currently has full-time employment. In addition, your eldest son, XXXXXXXXXX is enrolled as a full-time student at XXXXXXXXXX You believe that he may be using student loans for his maintenance and that your spouse is using the related monthly support of $XXXXXXXXXX that you are paying in respect of him for her own benefit. On the basis that your daughter may no longer be considered a “child of the marriage” as a result of the above circumstances and that your spouse is not supporting your son, you are considering to apply to the Ontario Court (General Division) for an order under which you would no longer be required to pay support for these two children. As an alternative in respect of your XXXXXXXXXX son, you may request the Court to specify in the order that your spouse is to transfer the monthly amount of $XXXXXXXXXX (net of income taxes) to him.
In relation to the above circumstances, you have referred to the new rules concerning child support under which child support payments may not be deductible by the payer and be non-taxable to the recipient even though the child support payments are being made in circumstances where an order was made prior to May 1997. One of your concerns is whether you could continue to deduct monthly child support payments of $XXXXXXXXXX (i) if you were to cease to pay the monthly amount of $XXXXXXXXXX in respect of your XXXXXXXXXX daughter and your XXXXXXXXXX son. A second concern is whether the transfer of support payments from your spouse to your son, net of income taxes, would cause the support payments to be non-taxable.
In order to address your specific concerns, it would be necessary to review all the relevant facts and documentation which would include a new order that may be issued by the Court. While this is not possible, we are providing you with the following general comments.
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 court order if the agreement or order has a “commencement day” which is defined in subsection 56.1(4) of the Income Tax Act (the “Act”) and, in general terms, is a day after April 1997. A court order or agreement made before 1997 will have a commencement day if the order or agreement is varied after April 1997 to increase or decrease the child support amounts payable. The commencement day would be the day on which the first payment of the varied amount is required to be made. However, revisions to increase or decrease child support amounts payable under a court order or agreement made before May 1997 as a consequence of automatic changes in child support amounts that are built into the order or agreement (e.g., cost-of living increases) will not, in and by itself, cause an agreement or order to have been varied so as to trigger a commencement day.
Part of the definition of “child of the marriage” in the Divorce Act defines this term to mean “a child of two spouses or former spouses who, at the material time, is sixteen years of age or over and under their charge but unable, by reason of illness, disability or other cause, to withdraw from their charge or to obtain the necessaries of life.” In circumstances where child support for a child is required to be made by an individual to his or her spouse under a court order made before May 1997 for as long as the child is a “child of the marriage” as defined in the Divorce Act and the individual applies to a court after April 1997 to revise the order on the basis that the child is no longer described within the definition of that term, the court could modify the monthly payment made in respect of the child if the child is employed or, in the alternative, could decide that payments of child support are no longer required for that child. In
these circumstances, without having the benefit of reviewing the actual court order, we would be inclined to view that the child support payable under the initial order has been varied with the result that the court order would have a commencement day. The result would then be that child support amounts paid on or after the commencement day (including such amounts paid in respect of other children), for a period that began on or after that day, would not be deductible.
An overview of the above comments is that, since the definition of “child of the marriage” in the Divorce Act is set out in very broad terms, it may well not be possible to determine a particular time under the terms of an original court order when a child ceases to be a “child of the marriage.” The fact that you believe you must seek the approval of the Court before you stop paying child support in respect of your XXXXXXXXXX daughter and XXXXXXXXXX son would seem to support the conclusion that the original order is vague in this respect. Accordingly, our initial reaction, again without the benefit of having reviewed an actual court order, is that a subsequent modification by the Court authorizing you to cease making such payments on the basis that the children no longer met the definition of “child of the marriage” would not constitute a scenario equivalent or similar to the scenario described above concerning automatic changes built right into the agreement or order.
Similar results would occur if a court were to decide that child support amounts payable in respect of a child under an initial order (on the basis that the child was a “child of the marriage”), were no longer required even though the child could still be regarded as being a “child of the marriage”.
A further concern relates to the situation where an individual was paying otherwise deductible child support to his or her spouse under a pre-May 1997 order in respect of a child who attended a post-secondary educational institution on a full-time basis. The concern is whether the individual could continue to deduct the support payments made in respect of the child (as well as other children) if a post-April 1997 court order were to be made by a court requiring the spouse, net of any income taxes payable by the spouse in respect of the support payments relating to that child, to forward the remainder of each such amount to the child.
With respect to the above circumstances, the child support amount in question must be payable to the spouse or former spouse in circumstances where the spouse has discretion concerning the use of the amount. On the understanding that the spouse or former spouse would not have discretion concerning the use of the amount, it would not be deductible. It is also our view that the initial order would have a commencement day because the amount of support directed to the child attending the post-secondary institution would no longer qualify as a “child support amount” as defined in subsection 56.1(4) of the Act with the result that the child support payable under the initial order would have been varied by the second order. Accordingly, other child support amounts paid on or after the commencement day, for a period that began on or after that day, would not be deductible.
For your general information, we have enclosed a copy of the pamphlet entitled “Support Payments” which generally discusses the new rules related to child support.
We trust that our comments will be of assistance to you.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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