4 June 2010 External T.I. 2010-0358951E5 - Deductibility of lump sum spousal support payment

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 court ordered retroactive spousal support paid in a lump sum is deductible to the payer in the year of payment?

Position: In this situation, no.

Reasons: The lump sum payment is not in respect of amounts payable periodically that were due after the date of the court order and therefore it does not meet the definition of a "support amount" as defined in subsection 56.1(4).

XXXXXXXXXX
									2010-035895
      								T. Elsey
June 4, 2010

Dear XXXXXXXXXX :

Re: Eligibility for tax deduction for retroactive spousal support paid in a lump sum

We are writing in response to your email dated February 24, 2010. We also acknowledge receipt of your email dated March 1, 2010 and your fax dated March 21, 2010. You have asked for our views regarding the deductibility of court ordered retroactive spousal support which you intend to pay to your ex-spouse as a lump sum payment. We apologize for the delay in our response.

Spousal support payments that meet the definition of "support amount" in subsection 56.1(4) of the Income Tax Act (the "Act") are deductible to the payer under subsection 60(b) of the Act and are required to be included in the recipient's income under paragraph 56(1)(b) of the Act.

In accordance with subsection 56.1(4) of the Act and as confirmed in paragraph four of IT-530R, Support Payments, an amount is a "support amount" if it meets all of the following conditions:

• 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.

We understand that your particular concern is whether the lump sum payment of the retroactive spousal support would meet the condition: "the amount is payable on a periodic basis", as required in subsection 56.1(4) of the Act.

As you noted in your email, paragraph 22 of IT-530 provides further clarification regarding support amounts paid as a lump sum. According to paragraph 22 of IT-530, an amount paid as a single lump sum will generally not qualify as being payable on a periodic basis. However, a lump sum payment paid in a taxation year will be regarded as qualifying as a periodic payment where it can be identified that the lump sum payment represents amounts payable periodically that were due after the date of the court order or written agreement that had fallen into arrears. In such a situation, the lump sum payment would not, in and of itself, change the nature of the underlying legal obligation of periodic maintenance payments.

This position was reiterated in CRA guide: P102, Support Payments - Includes Form T1158. Page 7 of CRA guide P102 indicates that an amount paid as one lump sum will generally not be considered a support payment because it is not paid on a periodic basis. Further, a lump sum payment made under a court order or written agreement for a period before the date of the order or agreement will generally not be considered a support payment.

Based on the information you provided, we understand that the lump sum payment is for spousal support that relates to the period before the date of the court order - while the court order was dated XXXXXXXXXX , the spousal support payments which you intend to pay as a lump sum amount are for the period from XXXXXXXXXX to XXXXXXXXXX . Since the lump sum payment represents spousal support amounts that relate to the period prior to the date of the order, it does not meet the exception in paragraph 22 of IT-530 and CRA guide P102 and therefore, does not meet the definition of a "support amount" per subsection 56.1(4) of the Act. As a result, the lump sum payment would not be deductible to you under subsection 60(b) of the Act nor is it taxable to your ex-spouse under paragraph 56(1)(b) of the Act.

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 IC 70-6R5 and are not binding on the CRA in respect of any particular situation.

Yours truly,

Randy Hewlett
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch