26 February 1999 External T.I. 9832235 - 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.

Principal Issues:

Tax treatment of child support payments.

Position TAKEN:

The $XXXXXXXXXX /month in child support received between January 1, 1997 to, and including, April 1, 1998 is deductible to the payer and required to be included in the income of the recipient.

The child support of $XXXXXXXXXX /month received as of May 1, 1998 falls under the new rules and, accordingly, is not deductible or required to be included in income.

Reasons FOR POSITION TAKEN:

[It is assumed that the draft order of October 1998, which was submitted, was finalized and made by the court on or before December 31, 1998.] While the court order was made in late 1998, it deems the $XXXXXXXXXX monthly child support payments, made from January 1, 1997 to April 1, 1998, to have been made under the order. Accordingly, by virtue of paragraphs 56.1(3)(b) and 60.1(3)(b), the order is deemed to have been made on January 1, 1997, and the old rules apply.

However, since the court order varies the monthly child support amount to $XXXXXXXXXX as of May 1, 1998, paragraphs 56.1(3)(b) and 60.1(3)(b) deem each such varied amount received and paid, to have been receivable and payable under an order the commencement day of which is May 1, 1998 (i.e., the day on which the first payment of the varied amount is required to be made). As a result, the varied child support amount of $XXXXXXXXXX paid and received as of May 1, 1998 falls under the new rules.

XXXXXXXXXX 5-983223
M. Azzi
February 26, 1999

Dear Madam:

Re: Child Support

This is in response to your letter of November 15, 1998, which was forwarded to us for reply by the Vancouver Tax Services Office. You have requested our views on the tax treatment of child support that you received in 1997 and 1998, in light of the new child support rules.

XXXXXXXXXX

Our Comments

The determination of the tax treatment of child support payments requires a review of all the relevant facts of each particular situation. Such a determination would require a review of all pertinent documents, including the XXXXXXXXXX agreement (which was not submitted) and, in particular, a review of the provisions of the final court order. This determination is also highly dependent on the date that this order is made by the court. We are therefore not in a position to provide you with a definite answer to your enquiry. However, we have enclosed a copy of Interpretation Bulletin IT-530, Support Payments, and can provide the following comments which should be of assistance.

Under the new rules, child support payments made pursuant to an agreement or court order are generally not deductible by the payer and are not required to be included in the income of the recipient, if the agreement or order has a “commencement day”, as defined in subsection 56.1(4) of the Act, and the child support amount is payable and receivable after the commencement day. Paragraph (a) of the definition of commencement day states that an agreement or order made after April 1997 will have a commencement day on the day the agreement or order is made. Paragraph (b) of the definition provides for a commencement day in respect of an agreement or order made before May 1997, and applies in certain specific situations, such as where the parties elect to have the new rules apply or certain terms of the agreement or order are changed.

In addition, the provisions of paragraphs 56.1(3)(b) and 60.1(3)(b) of the Act may, in certain circumstances, be used to deem an agreement or order made after April 1997 to have been made before May 1997. These paragraphs apply to payments made after 1996, where a written agreement or order of a competent tribunal made at any time in a taxation year provides that an amount paid and received before that time, and in the year or the preceding taxation year, is to be considered to have been paid and received thereunder (a “retroactive provision”). Paragraphs 56.1(3)(b) and 60.1(3)(b) of the Act deem an agreement or order with a retroactive provision to have been made on the day on which the first such amount was paid and received. Accordingly, an agreement or order made after April 1997 and before 1999, with a retroactive provision, may be deemed to have been made before May 1997, providing an amount was paid and received between January 1, 1997, and April 30, 1997. With the exception described below, an agreement or order deemed to have been made before May 1997 would not have a commencement day and would be subject to the old rules until, if ever, there is a commencement day pursuant to paragraph (b) of the definition of commencement day in subsection 56.1(4) of the Act. Under the old rules, child support payments made pursuant to an agreement or order that has no defined commencement day are, generally, deductible by the payer and required to be included in income by the recipient.

The exception mentioned above applies to an agreement or order made after April 1997 that varies a child support amount payable to the recipient from the last such amount paid to the recipient before May 1997. Paragraphs 56.1(3)(b) and 60.1(3)(b) of the Act would deem such an agreement or order to have a commencement day which is the day on which the first payment of the varied amount is required to be made.

If the draft order which you submitted was finalized and made by the court on or before December 31, 1998, and contains the same provisions as those submitted in the draft, the court order will be deemed, under paragraphs 56.1(3)(b) and 60.1(3)(b) of the Act, to have been made before May 1, 1997, provided you did, in fact, receive $XXXXXXXXXX monthly child support payments between January 1, 1997 and April 30, 1997. Accordingly, the $XXXXXXXXXX monthly child support payments paid and received between January 1, 1997, to and including April 1, 1998, would be deductible to XXXXXXXXXX and required to be included in your income. However, since the court order would vary the monthly child support amount to $XXXXXXXXXX as of May 1, 1998, paragraphs 56.1(3)(b) and 60.1(3)(b) of the Act would deem each such varied amount received and paid, to have been receivable and payable under an order the commencement day of which would be May 1, 1998 (i.e., the day on which the first payment of the varied amount is required to be made). As a result, the varied child support amount of $XXXXXXXXXX paid and received as of May 1, 1998 would fall under the new rules, and would not be deductible to XXXXXXXXXX or required to be included in your income.

If the draft order which you submitted was not finalized and made by the court on or before December 31, 1998, or the court order contains provisions which are different from those submitted in the draft, and you require further assistance on this matter, we suggest that you contact officials of your local Tax Services Office, who are in a better position to review the facts of your circumstances. However, we would note that, if the court order is not made until after 1998, based on the limited information provided, it would appear that both the $XXXXXXXXXX and the $XXXXXXXXXX of monthly child support paid and received in 1997 and 1998 would not be deductible or required to be included in income.

We trust that these comments will be of assistance.

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

c.c. André Villeneuve, Director

Vancouver Tax Services Office
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