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: Whether the child support payments are taxable/deductible in a situation where a court order reducing the child support payments is dated May XXXXXXXXXX , 1997 but the court order stated that this reduction begun on March 1st, 1997.
Position: The new rules apply as a result that the child support payments are non taxable/non deductible from May XXXXXXXXXX , 1997.
Reasons: Where child support payments have already been made under a pre-May 1997 court order and the payer contemplates to have it varied by a court which is effective prior to May 1997, the new rules would generally not be avoided.
XXXXXXXXXX
2010-039075
I. Landry, M.Fisc.
April 12, 2011
Dear XXXXXXXXXX :
Re: Child Support Payments
I am writing in reply to your letter of December 15, 2010 concerning the deductibility of child support payments made after April 1997 where payments have been made in conformity with a May XXXXXXXXXX , 1997 court order that reduced the amount of payments determined in accordance with a pre-May 1997 court order.
You indicated that the original court order was dated XXXXXXXXXX , 1993 and that the May XXXXXXXXXX , 1997 court order only varied the child support payment and did not replace the original court order. Although the May XXXXXXXXXX , 1997 court order indicated that the reduction of payments was effective from March 1st, 1997, it did not contain a provision providing that an amount paid before the court order was made is to be considered to have been paid thereunder. We assume that the payments qualified as "child support amount" as defined in subsection 56.1(4) of the Income Tax Act ("Act") and that you have never paid arrears since you always make your payments on time.
Unless otherwise stated, all statutory references in this letter are references to the provisions of the Act.
Written confirmation of the tax implications inherent in a particular transaction is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. The particular situation outlined in your letter relates to a factual one, involving a specific taxpayer, therefore, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments that may be of assistance.
The tax treatment of support payments is discussed in detail in Interpretation Bulletin IT-530R, Support Payments, which is available on the Canada Revenue Agency's ("CRA") website at www.cra-arc.gc.ca.
The basic thrust of the new child support provisions introduced in 1997 ("New Rules") was to eliminate both the requirement to include child support in the recipient parent's income and the deduction available to the payer. That is, in general terms, child support amounts payable and receivable pursuant to a written agreement or court order on or after its "commencement day", as defined in subsection 56.1(4), 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" is, generally, subject to the old rules and is deductible for the payer and taxable to the recipient.
The expression "commencement day" is defined in subsection 56.1(4) as:
(a) where the agreement or order is made after April 1997, the day it is made; and
(b) where the agreement or order is made before May 1997, the day, if any, that is after April 1997 and is the earliest of:
(i) the day specified as the commencement day of the agreement or order by the payer and recipient under the agreement or order in a joint election filed with the Minister in prescribed form and manner,
(ii) where the agreement or order is varied after April 1997 to change the child support amounts payable to the recipient, the day on which the first payment of the varied amount is required to be made,
(iii) where a subsequent agreement or order is made after April 1997, the effect of which is to change the total child support amounts payable to the recipient by the payer, the commencement day of the first such subsequent agreement or order, and
(iv) the day specified in the agreement or order, or any variation thereof, as the commencement day of the agreement or order for the purposes of this Act.
In your situation, the original obligation to pay child support was created by the XXXXXXXXXX , 1993, court order. This pre-May 1997 court order was subject to the old rules. The May XXXXXXXXXX , 1997 court order was made in order to vary the child support payment.
In the absence of all the relevant details of a particular situation, it is difficult to comment definitively on the retroactivity of a specific provision included in a court order. However, we are of the view that the New Rules would generally apply in a situation where child support payments required to be made under a pre-May 1997 court order are varied by a new court order made after April 1997 which is effective prior to May 1997. We are of the view that in the situation that you described, the "commencement day" of the May XXXXXXXXXX , 1997 court order is on May XXXXXXXXXX , 1997 and therefore, the New Rules apply to your situation. In fact, the May XXXXXXXXXX , 1997 court order only varied the child support amount payable from what it was under the previous court order.
Finally, under certain circumstances described in subsections 56.1(3) and 60.1(3), a written agreement or court order made after April 1997 could be considered to have been made prior to May 1997 and subject to the old rules. Subsections 56.1(3) and 60.1(3) contemplate a situation where support payments were made before May 1997 at a time where no written agreement or court order existed and then a written agreement or court order was subsequently made with a retroactive clause therein. This is not the case in the present situation. The present situation is one in which child support payments were already made prior to May 1997 pursuant to a court order and such payments were varied after April 1997.
We trust that these comments will be of assistance.
Yours truly,
Guy Goulet CA, M.Fisc.
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2011
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2011
Email this Content