Section 56.1

Amounts required to be paid to Madame under a separation agreement were not child support amounts. Given that the terms of the agreement did not specify that the amount paid was for the benefit of the spouse and that the indication of what the amount was to be used for was general enough to include amounts necessary to provide for the needs of the children, the amount was not intended solely to provide for the needs of the spouse.

A divorce judgment issued in 1995 established a child support obligation for Monsieur, but when one of the children moved in with Monsieur, he successfully moved to reduce his support obligations, first obtaining a “safeguard” interim order, and then a final judgment of the Superior Court of Quebec rendered judgment was rendered in 2005 confirming inter alia the support reduction. CRA indicated that the 2006 judgment established a commencement date (so that the old rules ceased to apply) and that, in light of the retroactive nature of the 2006 judgment, the commencement date under subpara. (b)(iii) regarding that judgment was the day on which the modified amounts first became payable in 2003.

The Directorate interpreted a court order to reinstate support as a new order (noting in this regard that “the judge modified the recipient's motion to reinstate (re-enforce) support so that the motion was instead a motion to establish support”), so that it triggered a commencement day under para. (a). In addition, there also was a commencement day under subpara, (b)(ii) as a result of the amount of the support being varied.

A temporary agreement signed by Monsieur and Madame indicating a change in the amount of support and custody of one of the children thereby caused a commencement day when the first payment was made, so that the new rules commended to apply. However, the Directorate noted:

[W]hen the temporary agreement ends, the terms of the [pre-existing] judgment will be once again in force. This has the effect of applying the old rules on support, which means that Monsieur could deduct the amounts paid and Madame would be taxed on the amounts received under that judgment … .

A temporary judgment made after April 1997 changed the support payable by Monsieur pursuant to a pre-May 1997 judgment. A final judgment cancelled the temporary judgment and restored the amount of support payments to the level under the initial judgment.

The Directorate found that the temporary judgment had a commencement day for the amounts paid under it pursuant to para. (a) of the definition, so that the amounts paid were not deductible to Monsieur.

However, the temporary judgment, did not appear to have replaced the initial judgment and was in effect for only a short period. Accordingly, there was a position that the final judgment brought the initial judgment back into effect, so that thereafter the support payments were deductible Monsieur.

Madame made monthly payments to Monsieur pursuant to an interim agreement (later confirmed by an interim order) between her and him "without admission from either side of the reasons for payment." In a subsequent judgment, the Court retroactively characterized the monthly payments as support amounts and also ordered that Madame pay an additional amount to Monsieur as arrears of support amounts for Monsieur.

In addressing whether these amounts were includible under s. 56(1)(b) in computing the income of Monsieur and deductible under s. 60(b) in computing the income of Madame for the relevant taxation years, the Directorate found that the monthly payments satisfied “the conditions in the definition of support amounts provided for in subsection 56.1(4) at the time they were paid and therefore those amounts are deductible by Madame and taxable to Monsieur.” However, respecting the additional amount ordered to be paid as arrears of support, it:

[did] not constitute an amount of support for the purposes of subsection 56.1(4) since it was not an amount payable or receivable as a periodic allowance. That amount is therefore neither deductible by Madame nor taxable to Monsieur.

A resident of France was awarded compensatory allowances by order of the applicable French court on her divorce from her husband, consisting of a lump sum (payable in two instalments separated by a year) and a life annuity payable on a monthly basis. She became a resident of Canada. Withholding tax was levied by the French tax authorities on the life annuity but not on any portion of the lump sum.

CRA found that the lump sum was not includible in her income being a capital sum that was intended to “equalize the resources of the two spouses following the dissolution of the marriage,” but that the life annuity was includible in her income as a support amount as it was for support, she had full discretion as to the use of the funds, it was payable periodically, pursuant to an order of a court of competent jurisdiction and the payee and payor were living separate and apart due to marriage breakdown.

A divorce judgment endorsed an agreement on ancillary measures (the "Agreement") pursuant to which the taxpayer (the “husband") was obligated to pay not only monthly indexed support amounts but also lump annual amounts geared to his year end bonuses or other variable remuneration. In finding that these annual amounts also qualified as support amounts, the Directorate noted that they represented a certain portion of his variable compensation, they were time-limited (lasted until retirement), and took into account the income and financial circumstances of each party.

The Directorate applied the proposition that:

Where support arrears are settled for less than the amounts actually in arrears, the amounts paid and received in accordance with the settlement, whether in a lump sum or by instalments, are not deductible to the payer and are not taxable to the recipient.

Monsieur (whose was in arrears in his child support obligations) and Madame signed a written agreement whereby they agreed that Monsieur would pay Madame a lump sum in full satisfaction of past and future child support obligations, and that Madame was to reimburse Monsieur if he became obligated to pay child support. In finding that such sum was not deductible to Monsieur pursuant to s. 60(b) and was not to be included in Madame's income pursuant to s. 56(1)(b), CCRA referred to its position in IT-530, para. 22 that a lump sum payment is not considered to be a support amount (as defined in s. 56.1(4)) where it is a lump sum payment made to obtain a release from a liability imposed by an order or agreement, whether such liability be in respect of arrears of maintenance payments, future payments, or both, and stated:

[T]he lump sum payment discharged Monsieur from his future obligation to pay periodic allowances as well as from his obligation in respect of arrears. … Monsieur was in fact released from any future obligation to pay support under the written agreement, since Madame was obliged to reimburse him for any subsequent support payments. We can therefore conclude that the lump-sum payment effectively relieved Monsieur of a future obligation and was not support.

A court order required Monsieur to pay, as support, all expenses related to the marital home and a weekly amount for Madame and the children. Before finding that the payments did not qualify as an allowance, the Directorate stated:

In Assaf v. The Queen (unreported), a written agreement provided for the payment of $10,000 to the ex-spouse to cover a portion of the children's university expenses. In concluding that the sums received did not constitute an allowance, Garon J. stated:

In interpreting subs. 56(12) it should be noted that, for amounts received for example by a spouse or former spouse to be an allowance within the meaning of this subsection, it does not matter that the person paying the alimony does not control or attempt to control the use of the money in question. However, the judgment or agreement, as the case may be, must not specify the use to be made of these amounts. If there is such an indication, it follows that if the spouse or former spouse receiving the money in question does not use it in the way specified in the judgment or agreement, he or she will be failing to perform the obligation contained in the judgment or agreement. It is in this sense that the recipient of the amounts in question does not legally have discretion as to their use under subs. 56(12).

On the breakdown of their marriage, a couple held various immovable properties in equal co-ownership. Pursuant to a separation agreement, each transferred co-ownership interests to the other so that each became the full owner of properties. However, Madame received full ownership of one additional property in recognition that it generated net rental income that was to be used by her for child support. The Directorate indicated that it was in her capacity of owner that Madame received the net rental income, so that it was included in her income as rental income.

The separation agreement (later ratified by court judgement) between the taxpayer and former spouse agreed to share equally the income from the pension fund of the taxpayer's former employer. Pursuant to the subsequent divorce decree, the ex-spouses were to share equally the pension rights held by the taxpayer. The Directorate indicated that since a clause in the separation agreement indicated that the amounts paid were intended to be support, they constituted alimony payments rather than pension income to the recipient, so that IT-499, para. 11 was inapplicable. However, under the terms of the divorce decree, this element fell away, and the amounts were received by the ex-spouse as pension payments.

In the context of a transitional issue, the Directorate indicated that the recipient of payments by way of periodic cheques did not have discretion as to their use when she was required by an agreement with the payor to not deposit the cheques. It stated:

[T]he fact that the wife is under an obligation not to deposit the cheques she receives under the support payment collection plan, but must endorse them and remit them to the husband, are restrictions that ensure that the amounts paid do not meet the parameters of the definition of "support payments".

Monsieur and Madame separated and Monsieur started paying child support to Madame pursuant to a judgment rendered by the Quebec Superior Court. Monsieur and Madame resumed living together and Monsieur stopped paying child support and, after they separated again, resumed child support, without any further judgment or written agreement having been rendered or entered into in this regard.

The Directorate stated regarding the treatment of the child support paid following the second separation:

S.M. v. M.L., 1996 J.Q. no. 5103 … established that support and custody judgments lose all effect when the parents resume living together … [and] that these judgments would not take effect if the parents subsequently separated again. …

Since the amounts were paid under a new agreement, which was only a verbal agreement between the parties, that arose following the second separation, the amounts paid by Monsieur do not meet the definition of "support amount" in subsection 56.1(4) … .

Amounts required to be paid to Madame under a separation agreement were not support amounts. The amount was a support amount because the recipient could use it as the recipient saw fit. In particular, although the agreement referred to expenses that the amounts could be applied to, she was not required to so apply such amounts and, therefore, she had reasonable discretion as to the amounts’ use.

An agreement or judgment provided for the payment of monthly support to the spouse or former spouse and, in addition, the written agreements provided that the payer was to pay the spouse or former spouse an annual amount to reimburse such recipient for the income tax that the latter had to pay on the taxable support received. Before concluding that this annual amount also qualified as a support amount, the Directorate stated:

… Robert Monette v. MNR (T.C.C.) 92 DTC 1622 and Jacqueline Guerin v. The Queen (T.C.C.) 94 DTC 1356 … concluded that the amount paid to reimburse the income tax on the taxable support received was related to the monthly support payments and represented a periodic allowance deductible pursuant to paragraph 60(b) and taxable pursuant to paragraph 56(1)(b).

After finding that a letter signed by the two separated spouses did not constitute an “agreement” for purposes of the “support amount” and “commencement day” definitions, the Directorate went on to state:

A written agreement subsequent to an order could, in certain circumstances, be valid for the purposes of applying the terms "commencement day", "support amount" and "child support amount" if such an agreement corresponded to the reality of a situation of shared financial and parental responsibilities and if the agreement was a valid contract between two parties having the effect of creating mutual obligations. This would mean recognizing not only changes in support payments but also changes in custody of a child or children. Consequently, it would allow eligibility in certain cases for the wholly dependent person credit pursuant to paragraph 118(1)(b).

Subsequent to a pre-May 1997 divorce judgment rendering enforceable a written consent to ancillary relief between Monsieur and Madame, they consented after April 1997 to a judgment being entered to vary the ancillary relief, which varied the support payable for Madame and the minor child, and provided for the payment of support that was in arrears. The Directorate noted the statement in IT-530, para. 22 that:

[A] lump sum paid in a taxation year is regarded as qualifying as a periodic payment where it can be identified as being the payment of amounts payable periodically that were due after the date of the order or agreement and had fallen into arrears. A lump sum payment to obtain a release from a liability imposed by an order or agreement whether such liability be in respect of arrears of maintenance payments, future payments or both, does not qualify because it was not made in accordance with the agreement.

It indicated that if the arrears payment fell into the first category, “[s]uch payment could represent an amount relating to periodic support payments that became payable under a written agreement or order made before May 1997” so that such arrears payment would be deductible taxable to Monsieur and taxable to Madame.

In finding that the submitted documents did not constitute a “written agreement,” the Directorate stated:

[N]one of the documents submitted constitutes a contract under which the parties have agreed on the scope of the services that one of the parties is required to perform and which confers on the contractual creditor the right to demand full performance.

Under an order, the taxpayer, who had legal custody of his children, was required to pay his ex-wife a specified sum each time the two children visited their mother for a period of one week during the spring break, during the holiday season and for four weeks in July. However, these represented only available times, and no routine was established between the parties as to when the visits occurred, which varied from year to year.

In finding that there was not the required element of periodicity for the amounts to qualify as an allowance, so that they did not qualify as support amounts, the Directorate stated:

In reality, no routine is established between the parties such that a certain regularity can be established from year to year, and even less so from week to week.

CCRA indicated that monthly amounts paid by Monsieur to Madame might not be support amounts though the written agreement labelled them as support and did not provide for interest on unpaid amounts or accord the option to Monsieur to prepay, if it could be demonstrated that they were not necessary for Madame’s support and were paid to her to compensate her for her release to corporate parties to the agreement.

In finding that the amount of support paid by Monsieur to Madame, which is less than that provided for in the court order for support to her, was deductible under former s. 60(b), CCRA indicated that the payment of an amount less than that provided for in the order does not change its nature: the definition of support provides only that the amount must be “payable” periodically as an allowance for the support of the persons concerned and not an amount that has been “paid” on that basis.