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: Taxpayer asks why all support payments were not exempted from tax rather than only those made pursuant to an agreement or court order made after April 30, 1997.
Position: Explanation given.
Reasons: Taxability/deductibility was a consideration in deciding the amount of the Payments by the parties and the courts, prior to the "new rules".
June 18, 1998
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to respond to your letter of April 2, 1998, wherein you asked the reason why the new legislative changes relating to child support payments did not exempt from taxation all child support payments but rather exempted only payments made pursuant to an agreement or court order made after April 30, 1997.
The Income Tax Act provides that child support payments made pursuant to an agreement or order that has a "commencement day" are non-deductible by the payer and not required to be included in income by the recipient (the "new rules"). Child support payments made pursuant to an agreement or order that has no defined "commencement day" will, generally, be deductible by the payer and required to be included in income by the recipient (the "old rules"). An agreement or court order made after April 1997 will generally have a commencement day on the day the agreement or order is made. Under both the old rules and the new rules, there is symmetry with respect to the taxability/deductibility of such periodic support payments.
Generally, the relevant parties involved in Pre-May 1997 agreements and court orders should have taken into account the tax consequences to both the payer and the recipient of these periodic support payments in determining their amount. The Department of Finance is responsible for tax policy and the introduction of legislation. The new rules were introduced in such a way that existing orders, and the related tax planning, would not be effected unless the parties decided that it would be appropriate to opt for the new rules.
I appreciate the opportunity to respond to your concerns.
Yours sincerely,
Denis Lefebvre
Assistant Deputy Minister
Policy and Legislation Branch
A.M. Brake
957-2133
May 28, 1998
4-981138
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