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: Can a lump sum amount paid for retroactive spousal support in respect of periods prior to the date of a written agreement qualify as a "support amount" in subsection 56.1(4) of the Income Tax Act (the "Act")?
Reasons: A lump sum payment for retroactive spousal support is not for amounts that were payable on a periodic basis that were due after the date of a written agreement that had fallen into arrears and therefore the amount paid does not meet the definition of support amount in subsection 56.1(4) of the Act.
March 18, 2011
Dear XXXXXXXXXX :
Re: Technical Interpretation Request - Retroactive Spousal Support
We are writing in response to your e-mail of August 4, 2010 requesting our comments on how to collect a refund for a lump sum amount that you paid in May 2010 for retroactive spousal support in the amount of $18,750.00 as per a separation agreement (the "Agreement").
The facts as we understand them are:
According to the Agreement you have paid monthly spousal support as follows:
February 1, 2009 to December 1, 2009 11 x $1,100.00 = $12,100.00*
January 1, 2010 to April 1, 2010 4 x $1,100.00 = $4,400.00
*(the Agreement actually states that the total is $13,200)
The Agreement states that the amounts actually paid in 2009 and 2010, and before the date of the Agreement are tax deductible to the husband and are to be included in the wife's income pursuant to subsections 56.1(3) and 60.1(3) of the Income Tax Act (the "Act").
The Agreement also states that you are to pay $18,750.00 to your wife commensurate with signing of the Agreement. The amount reflects the difference between the payments actually made and the amount that should have been paid, i.e. $1,250.00 and 15 = $18,750.00 for the period from February 1, 2009 to April 1, 2010.
You stated that you asked that your 2009 income tax return be reassessed and were only allowed $13,200.00 (11 X $1,100.00), the amount that you actually paid in 2009. According to our calculations the amount actually paid is only $12,100.00 in 2009.
According to the Agreement you are not paying child support in respect of your children to your wife.
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.
An amount paid in respect of spousal support must meet the definition of "support amount" in subsection 56.1(4) of the Act to be tax deductible by the payer under paragraph 60(b) of the Act and included in the income for the recipient under paragraph 56(1)(b) of the Act.
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.
Paragraph 9 of IT-530R defines the term allowance as it is used in the definition of support amount to mean a specified sum of money which has been established in advance of payment by the court or the parties as being the required payment to be made by the payer to the recipient for the maintenance of the recipient, children of the recipient or both.
In general, where support amounts are paid in respect of spousal support only they are tax deductible for the payer under paragraph 60(b) of the Act if they are paid according to and after, a written agreement or an order of a competent tribunal is made.
There is an exception to this general rule. Subsection 60.1(3) of the Act provides for amounts paid before a written agreement or order of a competent tribunal is made. The subsection essentially stipulates that where a written agreement or order of a competent tribunal "made at any time in a taxation year" provides that amounts paid before that time and in the year or the preceding year are to be considered to have been paid and received thereunder, such prior-paid amounts are treated as having been paid pursuant to the written agreement or order.
Subsections 60.1(3) and 56.1(3) of the Act does apply to the payments that were actually made by you to your wife in 2009 and 2010 that were paid before the Agreement was made. These provisions would not apply to the lump sum payment you made in May 2010 in the amount of $18,750.00.
Paragraph 22 of IT-530R states that an amount paid as a single lump sum will generally not qualify as being payable on a periodic basis. One exception is if the lump sum payment represents amounts payable periodically that were due after the date of the order or written agreement that had fallen into arrears. In your case the amount paid ($18,750.00) was in respect of a period (February 1, 2009 to April 1, 2010) prior to the date of the Agreement (May 12, 2010). Thus the $18,750.00 amount paid is not for amounts payable on a periodic basis that had fallen into arrears. Paragraph 22 of IT-530R states that a lump sum payment required by a court order or written agreement in respect of a period prior to the date of the order or agreement would not be considered a qualifying support amount for purposes of subsection 56.1(4) of the Act. In our view, it appears that the payment is for a new spousal support obligation that is calculated with reference to a period that is prior to the date of the Agreement.
The federal court of appeal in Tossell v. The Queen and Peterson, 2005 DTC 5365, considered whether a lump sum payment for retroactive child support could be a payment in respect of child support that had fallen into arrears. The court stated the following:
"It is clear from this statutory description of retroactive support payments that a legal obligation to pay retroactive child support is a new obligation. It could be, for example, a new obligation to pay child support for a specified prior period for which there was no pre-existing obligation. Or, it could be a new obligation to pay child support for a specified prior period in addition to child support payable under a previous agreement that has been found inadequate. Either way, a legal obligation to pay retroactive child support is the converse of a legal obligation to pay arrears of child support."
Similarly, the $18,750.00 amount that you paid, in your case for spousal support is not for amounts that were payable on a periodic basis that were due after the date of a written agreement that had fallen into arrears and therefore the amount paid does not meet the definition of "support amount" in subsection 56.1(4) of the Act.
Thus the lump sum payment that you paid to your wife is not deductible under paragraph 60(b) of the Act nor should it be included in the income of your wife under the parallel paragraph 56(1)(b) of the Act. Accordingly, the Act will not allow a refund in respect of the lump sum payment that you made.
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.
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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