18 December 1998 External T.I. E9829185 - 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:

1. Whether a “commencement day” as defined in subsection 56.1(4) of the Act would be triggered in respect of a new court order or a variation of a pre-May 1997 court order that introduces a provision stipulating when child support amounts payable are to cease in respect of the children of the marriage.

2. If the payer makes payments once a year directly to the children for their university tuition, would this amount be considered child support and would the payments be taxable and deductible?

Position:

1. Question of fact that depends on the wording of the new court order or variation of the pre-May 1997 court order but likely that a commencement day would be triggered.

2. No, payments made pursuant to a court order that are made directly to the taxpayer’s children for their university education would not meet the definition of “support amount” as defined in subsection 56.1(4) of the Act. It is also unlikely that subsection 60.1(1) of the Act would apply as the children, once they reach the age of majority, would not be considered to be in the custody of their mother and accordingly, one could not argue that the payments made directly to the payer’s adult children are for the benefit of their mother.

Reasons:

See Rulings file # 9803275, 9224985, 9614505, 913418.

XXXXXXXXXX 982918
G. Moore
December 18, 1998

Dear XXXXXXXXXX:

Re: Child Support

This is in reply to your letter of November 4, 1998, regarding child support payments.

Further to the telephone conversation (Wilson/XXXXXXXXXX ) of November 10, 1998, you indicated that you wish to withdraw your request for an advance income tax ruling and instead request our comments regarding child support payments.

XXXXXXXXXX

The court order does not contain any provision dealing with when the child support payments are to cease. XXXXXXXXXX now wishes to obtain either a variation of the court order or a new order indicating that child support payments will cease when each child reaches the age of XXXXXXXXXX . There will be no change to the amount of child support amounts payable of $XXXXXXXXXX per month. It is your view that a variation of the old order or a new order would not have a “commencement day” as defined in subsection 56.1(4) of the Income Tax Act (the “Act”) since there would be no change to the amount of child support amounts payable. It is your view that since the new order or a variation of the old order would set the age at which child support amounts would no longer be payable, the new order or variation of the old order would give certainty to the parties as to when the payer’s obligation will cease.

You have also indicated that the new order or variation of the old order will also provide that XXXXXXXXXX is required to pay $XXXXXXXXXX per year per child directly to his children, for university tuition. It is your view that since these payments will be made directly to the children and both children are over the age of majority, this change to the old order or its inclusion in a new order would not result in the order having a “commencement day” as defined in subsection 56.1(4) of the Act.

Our Comments

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).

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.

A review of the court order dated XXXXXXXXXX, indicates that paragraph 1 of the order, made pursuant to the Divorce Act (1985), refers to XXXXXXXXXX as “des enfants suivants du marriage” (i.e. “children of the marriage”). Paragraph 3 of the order stipulates that $XXXXXXXXXX per month is payable by XXXXXXXXXX to XXXXXXXXXX “pour l’entretien des enfants susnommés (i.e. for the maintenance of the above-mentioned children.) Section 2 of the Divorce Act defines “child of the marriage” as meaning a child of two spouses or former spouses who, at the material time, is (a) under the age of sixteen years, or (b) 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. The court order does not stipulate that child support payments are to be made as long as the child mentioned in the court order is a “child of the marriage” as defined in the Divorce Act. In addition, even where a court order stipulated that the child support was to continue for as long as the particular child could be regarded as being a “child of the marriage”, 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 such an order when a child ceases to be a child of the marriage. Accordingly, our initial reaction, without the benefit of having reviewed the new court order, is that a subsequent modification by the Court authorizing XXXXXXXXXX to cease making child support payments when each child reaches the age of XXXXXXXXXX would trigger a “commencement day” since such changes were not as a consequence of an automatic change built into the initial order.

Where the pre-May 1997 order is clear as to when child support for a particular child is to cease, the cessation of such payments in accordance with the date set out in the pre-May 1997 order would not generally trigger a “commencement day”. In this regard, section 15(4) of the Divorce Act indicates that the court may make an order under this section for a definite or indefinite period or until the happening of a specified event and may impose such other terms, conditions or restrictions in connection therewith as it thinks fit and just.

For a court order made after April 1997, the “commencement day” would be the day the court order is made. Whether we would regard a new court order as having been made after April 1997 would generally depend on the legal relationship between the XXXXXXXXXX court order and the post-April 1997 court order and the wording of the post-April 1997 court order. For example, if a new order made after April 1997 specifies that the child support amounts payable will remain unchanged until such time as the children reach the age of XXXXXXXXXX, at which time payments will cease, and the pre-May 1997 order no longer has legal force and effect (i.e. the post-April 1997 order replaces the pre-May 1997 order), it would be our view that paragraph (a) of the definition of “commencement day” in subsection 56.1(4) of the Act would likely apply since the post-April 1997 order would be an “order made after April 1997” and the “commencement day of the new order would be the day the order is made. If, on the other hand, the post-April 1997 order varies the pre-May 1997 order such that the pre-May 1997 order still has legal force and effect with respect to the amount of child support amounts payable, and the post-April 1997 order specifies the date or circumstances under which the child support amounts payable will cease, an argument can be made that the variance order changed the total child support amounts payable to

the recipient. Consequently, subparagraph (b)(ii) of the definition of “commencement day” in subsection 56.1(4) of the Act would apply so that the commencement day of the pre-May 1997 order would be the day on which the first payment of the varied amount is required to be made (i.e. the time at which the first child reached the age of XXXXXXXXXX). Without having the benefit of reviewing the actual draft of the post-April 1997 court order, in general, we would be inclined to view either a variation of a pre-May 1997 order or a new post-April 1997 order dealing with the cessation of the child support amounts payable as having a “commencement day” as defined in subsection 56.1(4) of the Act. The result would be that the child support amounts payable or receivable pursuant to the order on or after its commencement day would not be deductible for the payer or taxable to the recipient, as the case may be.

With respect to the fact that the new order or variation of the old order will also provide that XXXXXXXXXX is required to pay $XXXXXXXXXX per year per child directly to his children, for university tuition, pursuant to the definition of “support amount” in subsection 56.1(4) of the Act, a “support amount” means an amount payable or receivable as an allowance on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and children of the recipient, if the recipient has discretion as to the use of the amount. In addition, for an amount to qualify as a “support amount”, the recipient has to be the spouse or former spouse of the payer, the recipient and payer have to be living separate and apart because of the breakdown of their marriage, and the amount has to be receivable under an order of a competent tribunal or under a written agreement. Alternatively, pursuant to the definition of “support amount”, the payer has to be the natural parent of a child of the recipient and the amount has to be receivable under an order made by a competent tribunal in accordance with the laws of a province. Since the new court order or variation of the old court order would require XXXXXXXXXX to pay $XXXXXXXXXX per year per child directly to his two children for their university tuition, these payments to his children would not qualify as a “support amount”, as defined in subsection 56.1(4) of the Act. Accordingly, it is our view that the inclusion of a provision in a new court order or a variation of an old court order that provides for such payments to be made directly to XXXXXXXXXX sons would not, by itself, trigger a “commencement day” as defined in subsection 56.1(4) of the Act.

However, under subsection 60.1(1) of the Act, an amount payable under a court order or written agreement (or any variation thereof) to a person or for the benefit of the person, children in the person’s custody or both the person and those children, provides that payments or amounts payable are deemed to be payable to and receivable by or paid to and received by, as the case may be, the person (i.e. the recipient spouse or former spouse). This deeming provision enables the payer to obtain a deduction under paragraph 60(b) of the Act, provided the payments otherwise qualify, and ensures that third party payments are taken into consideration in determining the amount the payer may deduct under paragraph 60(b) of the Act. In order for subsection 60.1(1) of the Act to apply to payments made directly to XXXXXXXXXX sons, since they are not being made to his former spouse, the payments must be for the benefit of his former spouse, the children in her custody or both the former spouse and the children. It is our view that once a child of a marriage reaches the age of majority, that child is no longer considered to be in the custody of the parent. Therefore, a payment made directly to an adult child cannot be said to be for the benefit of either the spouse or a child in the custody of the spouse. Accordingly, it is our view that generally, amounts payable pursuant to a new court order or a variation of an old court order directly to an adult child would not be deductible pursuant to paragraph 60(b) of the Act.

We trust our comments will be of assistance to you.

Yours truly,
J. Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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