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 third party payments for a child’s education are taxable\deductible if the court order/written agreement, that has a commencement day (as defined in subsection 56.1(4) "new rules"), specifically states that subsections 56.1(2) and 60.1(2) apply to such third party payments for the education of the child.
Position:
No.
Reasons:
While subsections 56.1(2) and 60.1(2) in and by themselves, do not differentiate between an agreement or court order that has no commencement day ("old rules") and an order or agreement that has a commencement day ("new rules"), the "B" in the formula "A - (B + C) set out in paragraph 60(b) of the Act excludes the deduction of "child support amount" for payments ordered by a court or agreement that has a commencement day under the new rules.
980582
XXXXXXXXXX A.M. Brake
(613) 957-2133
Attention: XXXXXXXXXX
June 16, 1998
Dear Sirs:
Re: Child Support
This is in reply to your letter of March 5, 1998, requesting our comments regarding the deductibility/taxability of payments to be made to a private school for a child of the marriage, pursuant to a post-April 1997 agreement between the payer and his former spouse. You state that these third party payments do not qualify as "support payments" because they are not amounts payable on a periodic basis and that they are also not "child support payments". You state that the parties to the agreement agreed, as reflected in their written agreement, that subsections 56.1(2) and 60.1(2) of the Income Tax Act (the "Act") will apply to the payments and, therefore, the third party payments are deemed to be an allowance payable on a periodic basis and once deemed as such, they would then be considered as a "support amount" as defined in subsection 56.1(4) of the Act and therefore qualify for treatment (deductible/taxable) both parties have chosen and reflected in their agreement.
Subsection 56.1(4) of the Act defines the term commencement day (the "new rules). That subsection also defines "support amount" and "child support amount" and these terms apply to payments made under agreements or court orders that have a "commencement day" as well as to payments made under agreements or court orders that do not have a "commencement day". Also, subsections 56.1(2) and 60.1(2) of the Act, in and by themselves, do not differentiate between payments under an agreement or court order that has no commencement day and payments under an agreement or court order that has a commencement day.
Paragraph 60(b) of the Act provides a deduction for "support amount" by formula "A -(B + C)" where, "A" is the "support amount", including qualifying third party payments that are deemed "to be an amount payable by the taxpayer to that person and receivable by that person as an allowance on a periodic basis, and the taxpayer is deemed to have the discretion as to the use of that amount." Otherwise, these third party payments would not qualify within the definition of "support amount". Through the workings of subsection 60.1(2) of the Act, these amounts can qualify as "support amount", provided they otherwise qualify within the framework of that provision. However, "B" of the formula excludes from the deduction, provided under paragraph 60(b) of the Act for "support payments", all "child support amount" that became payable by the taxpayer to the former spouse under an agreement or court order on or after its commencement day. Therefore, under the new rules, the only amount deductible/taxable would be the amount by which the "support amount" exceeds the "child support amount" which is defined as that part of the "support amount" that is "not identified in the agreement or court 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 a natural parent". Third party payments to a private school for a child would not be identifiable as "being solely for the support of a spouse or former spouse" and, under the new rules, being "child support amount" would not be deductible/taxable.
We trust 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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