17 August 1998 Ministerial Letter 9811258 - CHILD SUPPORT, RETROACTIVE PROVISION

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.

August 17, 1998

XXXXXXXXXX

Dear Colleague:

I am writing in response to correspondence of April 17, 1998, received from XXXXXXXXXX, concerning an enquiry received from your constituent,XXXXXXXXXX, regarding child support payments.

Child support payments made pursuant to an agreement or order that has a commencement day, as defined in the Income Tax Act, are non-deductible by the payer and are not required to be included in income by the recipient (the new rules). Child support payments made pursuant to an agreement 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).

I understand that XXXXXXXXXX is currently paying child support under the old rules. If a court order is varied after April 1997 to change the child support amount payable by your constituent or if a new court order is made after April 1997, the effect of which is to change the total child support amount payable by your constituent, the court order will be considered to have a commencement day and the new rules will apply.

Your constituent has asked if the new rules can be avoided by the use of a retroactive provision in a court order. It is difficult for the Department to comment on issues of retroactivity without having the opportunity to review all the relevant facts and documentation. However, under circumstances such as those described by XXXXXXXXXX, where child support payments are already being made under a pre-May 1997 court order and the payer is now contemplating having the monthly child support amount varied by the courts on a retroactive basis (i.e. effective prior to May 1997), the new rules would generally not be avoided.

Subsections 56.1(3) and 60.1(3) of the Act (the retroactive provisions) allow for certain support payments made prior to the written agreement or court order to be eligible for deductibility since a condition for deductibility is that support payments have to be made pursuant to a written agreement or court order. The retroactive provisions in the Act have contemplated a situation where support payments are being made at a time when no written agreement or court order existed and then a written agreement or court order is subsequently made with a retroactive clause therein. This is not the case with XXXXXXXXXX. The situation described by your constituent is one in which child support payments were already being made prior to May 1997, pursuant to a court order, and such amounts will be varied after April 1997.

Where the retroactive provisions in the Act apply, it will deem the written agreement or order to have been made at the time the first support amount was received (subject to certain time limitations). It is this deeming rule that is the subject of the article from the Family Law Bulletin, as mentioned in XXXXXXXXXX letter, and is causing the confusion.

Under certain circumstances, the retroactive provisions in the Act can cause a written agreement or court order that was made after April 1997 to be considered to be made prior to May 1997, and therefore all child support payments provided thereunder may be subject to the old rules. However, there is an exception in these provisions that provides that where the agreement or order is made after April 1997 and varies a child support amount payable to the recipient from the last such amount paid to the recipient before May 1997, such an order or written agreement will be considered to have a commencement day on the day on which the first payment of the varied amount is required to be made.

It appears that in your constituent’s situation, there would be an order or written agreement made after April 1997 that would vary the child support amount from what was payable under the previous court order in April 1997. Accordingly, the court order would be deemed to have a commencement day and the new rules would apply.

Your constituent’s comments regarding the fairness of the new child support provisions relate to tax policy, which is the responsibility of the Department of Finance. Accordingly, any changes to tax policy or amendments to the legislation would have to be considered by that department. In this regard, I assure you that Finance officials are aware of the views that XXXXXXXXXX has expressed on this matter.

I trust my reply will be of assistance to your constituent.

						Yours sincerely,

						Herb Dhaliwal, P.C., M.P.

Gwen Moore
June 8, 1998
952-1506