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 consent order dated XXXXXXXXXX , requires the father of the child to pay $XXXXXXXXXX per month in child support but this amount may be varied annually as of XXXXXXXXXX of each year, based on the father’s annual employment income for the preceding year. The child support payable for each successive year is to be calculated on the father’s annual income based on a table annexed to the court order. A court order dated XXXXXXXXXX , orders the father to pay “support” of $XXXXXXXXXX per month . A payment order was issued to the father’s employer and payments are to be made directly to the Family Court.
1. Would the XXXXXXXXXX Consent Order that provides for automatic built-in increases in the amount of child support as of XXXXXXXXXX , come under the new tax treatment when the amount to be paid under the order changes in accordance with its stated provisions?
2. Is the new order dated XXXXXXXXXX , an order “made after April 1997” for purposes of paragraph (a) of the definition of “commencement day” in subsection 56.1(4)?
Position:
1. No, the automatic built-in increases in child support in the Consent Order are not considered to be a variation of child support.
2. The new order dated XXXXXXXXXX , has not varied the Consent Order dated XXXXXXXXXX since the increase in child support was built in to the pre-May 1997 Consent Order. The new court order dated XXXXXXXXXX , is an “order made after April 1997” for purposes of paragraph (a) of the definition of “commencement day” in subsection 56.1(4).
Reasons: See Question # 22 of #9723088 and T2020 with the Dept. of Finance and XXXXXXXXXX
1. If a mechanism is built into a pre-May 1997 court order that automatically increases the amount of child support in the future, these payments continue to fall under the old rules and there is no commencement day. The automatic increases in child support on XXXXXXXXXX of each successive year, by themselves, do not cause a “commencement day” to occur because there has to be a variation of the pre-May 1997 court order as well as a variation in child support amounts.
2. Whether the XXXXXXXXXX order is an order made after April 1997 depends on the legal relationship between the consent order and the court order. Based on the wording of the
XXXXXXXXXX order, it replaces the Consent Order. If the mother wants a future increase in child support from $XXXXXXXXXX per month payable under the XXXXXXXXXX order, she would have to go back to court. Accordingly, the court order dated XXXXXXXXXX , is an order made after
April 1997 for purposes of paragraph (a) of the definition of “commencement day” in subsection 56.1(4) of the Act.
September 24, 1998
Saint John Taxation Services Office HEADQUARTERS
Gayle Guimond G. Moore
Client Services 952-1506
7-982315
Child Support Payments - Definition of “Commencement Day” in Subsection 56.1(4)
We are writing in reply to your memo of September 3, 1998, in which you asked for our opinion concerning whether there is a commencement day (as defined in subsection 56.1(4) of the Income Tax Act (the “Act”)) for the court order XXXXXXXXXX
XXXXXXXXXX
The consent order provides that the child support payment shall be varied annually on XXXXXXXXXX of each successive year and the amount of child support payable for each successive year is to be calculated on XXXXXXXXXX annual income for the preceding year using a table annexed to the consent order. The consent order also stipulates that the child support payments shall be taxable and deductible under the provisions of the Income Tax Act. XXXXXXXXXX The order also stipulated that a payment order is to be issued to XXXXXXXXXX employer and that all payments are to be made to the Family Court. The court order requires that XXXXXXXXXX is to provide XXXXXXXXXX with a copy of his income tax return for each year.
As you know, the basic thrust of the new child support provisions is to eliminate both the requirement to include child support in the custodial or recipient parent’s income and the deduction available to payers of child support. Generally, the new rules apply to agreements or court orders made after April 1997. However, by virtue of the definition of “commencement day” in subsection 56.1(4) of the Act, the new rules apply to child support amounts paid under the terms of an agreement or order made before May 1997 if:
1. the parties both sign and file an election with the Department agreeing that the new tax rules will apply to the existing order or agreement after a specified date (no earlier than May 1, 1997),
2. the parties change the child support amounts payable to the recipient by amending the agreement or court order after April 1997,
3. another agreement or order is made after April 1997 and the effect of the subsequent agreement or order is to change the total child support amounts payable to the recipient by the payer, or
4. the order or agreement specifically provides that the new tax rules will apply after a specific date (no earlier than May 1, 1997).
With respect to the consent order dated XXXXXXXXXX, it is our view that since there is a mechanism built into the order that provides for automatic increases in child support, there would not be a commencement day as long as the child support amounts to be paid under the order change in accordance with its stated provisions. If this is the case, the automatic changes to child support amounts to be paid would not be considered to be a variation for purposes of paragraph (b)(ii) of the definition of “commencement day” in subsection 56.1(4) of the Act and would generally continue under the old rules.
Pursuant to paragraph (a) of the definition of “commencement day” in subsection 56.1(4) of the Act, for a court order made after April 1997, the “commencement day” would be the day the court order is made. Whether we would regard the court order dated XXXXXXXXXX, as having been made after April 1997 would generally depend on the legal relationship between the court order and the consent order. Based on a review of the information you have submitted to us, since the court order dated XXXXXXXXXX, supersedes the consent order dated XXXXXXXXXX, it is our view that the court order dated XXXXXXXXXX, would be regarded as being an order made after April 1997 and paragraph (a) of the definition of “commencement day” in subsection 56.1(4) of the Act applies. The commencement day of the court order is XXXXXXXXXX, and accordingly, the new child support rules apply to child support amounts payable or receivable, as the case may be, under the court order on or after its commencement day. Pursuant to paragraphs 56(1)(b) and 60(b) of the Act, the effect of this is that it eliminates both the requirement to include child support amounts receivable after the commencement day of the court order in XXXXXXXXXX income and the deduction available to XXXXXXXXXX for child support payable after the commencement day of the order.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department’s mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.
We trust our reply will be of assistance in this matter.
J. Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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