18 March 1998 External T.I. 9802785 - 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: The income tax consequences where a new court order may be issued in XXXXXXXXXX of 1998.

Position: It is a question of fact although the new order may have a commencement on the day it is made. Comments concerning the application of the new rules were also made.

Reasons: For the purposes of the definition of “commencement day” in subsection 56.1(4) of the Act, the new order may have a commencement day on the day it is made.

XXXXXXXXXX 980278
M. Eisner

March 19, 1998

Dear XXXXXXXXXX:

Re: Child Support

This is in reply to your letter of February 2, 1998, concerning the deductibility of child support.

In your situation, you have indicated that you entered into a separation agreement (the “Agreement”) with your former spouse on XXXXXXXXXX under which you were required to pay child support to her. As you had difficulty making the child support payments, you and your former spouse verbally agreed a short time later that you would pay her the bi-weekly amount of $XXXXXXXXXX for child support. Since that time, you have voluntarily increased the bi-weekly amount to $XXXXXXXXXX.

In 1997, your wife, in connection with court proceedings, filed the Agreement with the Ontario Court Provincial Division (the “Court”) while you filed a motion with the Court under which you would continue to make the bi-weekly payments of $XXXXXXXXXX. On XXXXXXXXXX, the Court issued an interim order (the “Interim Order”), which indicated that the child support payable under the Agreement, which was greater than the bi-weekly amount of $XXXXXXXXXX, be varied to the bi-weekly amount of $XXXXXXXXXX. The Court will issue a final order near the end of XXXXXXXXXX of 1998.

Your concern is whether you will be entitled to deduct child support amounts as a result of the final order that may be issued by the Court.

Our 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 order if the agreement or court 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. Where an order or agreement has a commencement day, child support amounts payable under an agreement or order on or after that day in respect of a period that began on or after its commencement day are non-taxable to the recipient and non-deductible by the payer. As a further comment, where the new regime is not applicable to child support, one of the requirements for the deductibility of child support is that the support be paid pursuant to a written agreement or a court order.

For a court order or agreement made before May 1997, the order or agreement will have a commencement day if the order or agreement is varied after April 1997 to increase or decrease the child support amounts payable. In relation to your situation, the Court, subsequent to April 1997, proceeded to change the child support payable under the Agreement on the premise that you were required to pay support pursuant to that Agreement. If this is the case, it would follow that the Agreement would have a commencement day with the result that the child support you are currently required to pay would be non-deductible by you and non-taxable in the hands of your former spouse.

In relation to the circumstances where the Court will proceed to consider the quantum of child support, it is not possible for us to determine all the income consequences that may result without a review of all the relevant facts and documentation including a new order. However, we are providing you with the following general comments.

Where a court has issued an interim order pending further proceedings with respect to the issuance of a final order, the interim order may only be effective up to the date that the final order commences to be effective. Where this occurs, the new order would normally have a commencement day on the day it is made as long as that day is after April 1997 and the general tax consequences mentioned above concerning an agreement or order that has a commencement day would be relevant.

On the basis that the Agreement has been varied as set out above, we also note that, even if the new order were to provide for the indefinite continuance of the Interim Order, child support payable on or after the day of the new order would continue to be non-deductible by you and non-taxable in the hands of your former spouse.

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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