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.
Principal Issues: Are payments for certain expenses in respect of a child and arrears payments for child support payable as per a court order made after April 1997 included in the recipient's income?
Position: It is a question of fact. However, where a reimbursement is made if and when a child expense is incurred and neither constitutes an allowance nor is statutorily deemed to be one, the reimbursement would not itself qualify within the meaning of "support amount" and "child support amount" and the recipient would not be required to include these amounts in income and the payer would not be entitled to a deduction.
Where a court order is made before May 1997 and the court order is varied by a second court order made after April 1997 to change the child support amounts payable, there would be a commencement day on the day on which the first varied amount is required to be made. Where an order has a commencement day, child support amounts payable under the order on or after its commencement day are non-taxable to the recipient and non-deductible by the payer. However, this would not have any effect on payments that are set out in the second order that reflect support amounts payable under the initial order that had fallen into arrears. The arrears that are paid would still be deductible/taxable even if the arrears are paid late and as long as the payments related to periodic payments ordered by the court before May 1, 1997. On the other hand if a reduced sum is paid by the payer to obtain a release from a liability imposed by the first order in respect of arrears of maintenance payments (i.e., the reduced sum cannot be identified as amounts payable periodically under the first Order), it would not be required to be included in income of the recipient.
Reasons: The position is consistent with IT-530R.
XXXXXXXXXX
2010-038160
N. Shea-Farrow
June 2, 2011
Dear XXXXXXXXXX :
Re: Technical Interpretation Request - Child Support
We are writing in response to your letter dated September 20, 2010 requesting our comments on whether payments for certain expenses in respect of a child and arrears payments for child support payable as per a court order (the "Second Order") dated November XXXXXXXXXX , 2007 should be included in your (Recipient's) income.
The facts as we understand them are:
The First order was granted on XXXXXXXXXX , 1994 which was not provided to us.
The Second Order states that the First Order is varied and the father (Payer) is ordered to pay to the Recipient $XXXXXXXXXX per month for the support of the child commencing December 1, 2007.
The Second Order requires the Payer to pay the Recipient for XXXXXXXXXX % of any net medical, dental and drug expenses, Alberta Health Care coverage and private medical and dental insurance coverage for the child commencing December 1, 2007. It also requires the Payer to pay a one-time lump sum to the Recipient for his proportionate share of the child's orthodontic costs.
Finally the Second Order states the Payer was in arrears for child support. It varies the First order and the Payer is ordered to pay the Recipient a minimum sum of $XXXXXXXXXX per month towards the arrears of support commencing December 1, 2007. If the Payer pays XXXXXXXXXX % of the total child support arrears owing on or before December 1, 2010, then the outstanding balance will be forgiven.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request as set out in Information Circular IC 70-6R5 dated May 17, 2002. Where the particular transactions are completed the inquiry should be addressed to the relevant tax services office. However, we are prepared to offer the following general comments, which may be of assistance.
Our Comments
Certain expenses required to be paid by the Payer
The term "child support amount" means any support amount that is not identified in the agreement or order under which it is receivable as being solely for the support of a recipient who is a spouse or common-law partner or former spouse or common-law partner of the payer or who is a parent of a child of whom the payer is a legal parent.
According to paragraph 4 of Interpretation Bulletin IT-530R, Support Payments, an amount is a "support amount" if:
- the amount is payable to the recipient;
- the amount is payable as an allowance for the maintenance of the recipient, children of the recipient or both;
- the amount is payable on a periodic basis;
- the recipient has the discretion as to the use of the amount; and
- where the recipient is the payer's current or former spouse, the amount is payable under an order of a competent tribunal or under a written agreement and the payer and the recipient are living separate and apart because of a breakdown of their marriage; or where the recipient is the parent of a child of whom the payer is the natural parent, the amount is payable under an order of a competent tribunal in accordance with the laws of a province or territory.
Page 6 and 7 of the Guide, P102, Support Payments (P102) and paragraphs 26 to 32 of IT-530R discuss exceptions to the general criteria described above for a "support amount". These exceptions are payments to a third party or payments for a specific- purpose including medical expenses that may still be considered to be support amounts.
However, in a situation, such as yours, where a reimbursement is made if and when a child expense is incurred and neither constitutes an allowance nor is statutorily deemed to be one, the reimbursement would not itself qualify within the meaning of "support amount" and "child support amount". The recipient would therefore not be required to include these amounts in income and the payer would not be allowed to deduct them.
Arrears payments for child support payable
In general terms, child support amounts payable and receivable pursuant to a written agreement or court order on or after its "commencement day", are subject to the new rules and, as such, are not deductible by the payer and are not required to be included in the income of the recipient. Child support payments made pursuant to an agreement or order that has no "commencement day" will, generally, be subject to the old rules.
Paragraph (a) of the definition of "commencement day" states that an agreement or order made after April 1997 will have a "commencement day" on the day the agreement or order is made. However, by virtue of paragraph (b) of the definition of "commencement day", an agreement or order made before May 1997 will also have a "commencement day", and fall under the new rules, if:
(i) the parties both sign and file an election with the Canada Customs and Revenue Agency agreeing that the new tax rules will apply to the existing agreement or order as of a specified date (no earlier than May 1, 1997),
(ii) the agreement or order is varied after April 1997 to change the child support amounts payable to the recipient,
(iii) 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
(iv) the agreement or order specifically provides that the new tax rules will apply as of a specific date (no earlier than May 1, 1997).
If a court order or written agreement has a commencement day, child support amounts paid on or after the commencement day of the order or agreement for a period that began on or after that day are not included in the income of the recipient.
If the court order or written agreement has a commencement day, child support amounts payable on or after the commencement day and before the end of the current year, for a period that began on or after the commencement day, have to be fully paid before the recipient has to include the amounts received in the year for child support payable for earlier periods or for support for the recipient.
Where a court order is made before May 1997 and the court order is varied by a second court order made after April 1997 to change the child support amounts payable, which appears to be your situation, there would be a commencement day on the day on which the first varied amount is required to be made, in your case December 1, 2007. Where an order has a commencement day, child support amounts payable under the order on or after its commencement day are non-taxable to the recipient and non-deductible by the payer. However, this would not have any effect on payments that are set out in the second order that reflect support amounts payable under the initial order that had fallen into arrears. The arrears that are paid would still be deductible/taxable even if the arrears are paid late and as long as the payments related to periodic payments ordered by the court before May 1, 1997.
On the other hand if a reduced sum is paid by the payer to obtain a release from a liability imposed by the first order in respect of arrears of maintenance payments (i.e., the reduced sum cannot be identified as amounts payable periodically under the first order), it would not be required to be included in income of the recipient.
You may also wish to refer to P102 for more information on support payments that can be found on the Canada Revenue Agency's website at www.cra-arc.gc.ca.
While we trust that our comments will be of assistance to you, they are given in accordance with the practice referred to in paragraph 22 of IC70-6R5 and are not binding on the CRA in respect of any particular situation.
We trust our comments will be of assistance to you.
Yours truly,
Sharmini Ratnasingham
Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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