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 lawyer has requested our opinion on the tax consequences when a portion of child support arrears are cancelled. She has attached an earlier opinion (972396) which contained a comment that the payment of the remaining arrears would not be deductible/taxable.
Position TAKEN:
When a portion of the arrears are cancelled, the remaining payable is no longer in respect of periodic payments pursuant to a court order.
Reasons FOR POSITION TAKEN:
Position taken in other files and supported by IT-530, paragraph 22, and prior court cases.
XXXXXXXXXX 5-990498
D. Miller
March 23, 1999
Dear XXXXXXXXXX:
Re: Arrears of Child Support
This is in reply to your letter of February 14, 1999, regarding the tax consequences of arrears of child support payments when a portion of the arrears has been cancelled. You have attached a copy of a previous opinion (972396) wherein we stated that the settlement of arrears at a reduced amount is not deductible/taxable. You have requested that we reconfirm our position.
Our position that the payments of a reduced amount of child support arrears is not deductible or taxable, remains unchanged. Paragraph 22 of Interpretation Bulletin IT-530 Support Payments, dated January 11, 1999 (copy attached), outlines the Department’s position. For a lump sum payment of arrears to be deductible/taxable it must be, among other criteria, identified with the payment of periodic amounts required by a court order or agreement. When a reduced lump sum is paid to obtain a release from a liability imposed by an order or agreement it is not deductible/taxable because it was not made in accordance with the agreement.
We trust that these comments will be of assistance.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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