Principal Issues: [TaxInterpretations translation] Application of the definition of "support amount" to specific facts.
Position: In this situation, a payment made by virtue of an Accessory Measures Agreement does not qualify as a support amount within the meaning of subsection 56.1(4).
Reasons: The payment is not a periodic allowance.
January 7, 2011
Jonquière TSO, Headquarters Personal and Benefits Services Income Tax Rulings Directorate Isabelle Landry, M. Fisc. 450-623-0193 Attention: Mrs. Ghyslaine Larouche 2010-038918
Support amount
This memorandum is in response to your e-mail of December 2, 2010, in which you requested our opinion regarding the characterization of a lump sum amount of $XXXXXXXXXX received as a support amount as defined in subsection 56.1(4) of the Income Tax Act (the "Act") in the following particular situation.
The Facts
In an Accessory Measures Agreement signed on XXXXXXXXXX (the "Agreement"), two former spouses agreed to the terms of what they called a "support amount for the benefit of the parties". Pursuant to this support amount for the benefit of the parties, the ex-spouse was entitled to receive an amount of $XXXXXXXXXX. The Agreement states that this payment was to be made on or before XXXXXXXXXX in a single payment, which should be treated for tax purposes as having been made for the XXXXXXXXXX year. Under the terms of the Agreement, this amount represents an amount of $XXXXXXXXXX per month for a 12-month period. The Agreement further provided that upon payment of the amount of $XXXXXXXXXX, the former spouse made a declaration of being financially self-sufficient for the past, present or future and waived of any subsequent support claims.
Unless otherwise indicated, all statutory references herein are to the provisions of the Act.
Our Comments
Subsection 56.1(4) defines the expression "support amount" as an amount payable or receivable as an allowance on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and children of the recipient, if the recipient has discretion as to the use of the amount, and if certain other conditions are satisfied.
To be considered as a "support amount", the amount must therefore be, among other things, a periodic allowance. Our general position on support amounts is stated in Interpretation Bulletin IT-530R, Support Payments. Paragraph 9 of Interpretation Bulletin IT-530R defines an allowance as “a specified sum of money which has been established in advance of payment by the court or the parties as being the required payment to be made by the payer to the recipient for the maintenance of the recipient, children of the recipient or both.” In considering an amount as a periodic allowance, however, reference should be made to the criteria set out in paragraph 21 of IT-530R, namely, the length of periods at which payments are to be made, whether payments are for an indefinite period or fixed term, whether the amount of payments is in relation to the income and living standards of both the payer and recipient, and whether the payments effect the release the payer from any future obligations to pay maintenance.
However, paragraph 22 of that Interpretation Bulletin clarifies that an amount paid as a single lump sum will generally not qualify as being payable on a periodic basis. A lump-sum payment may be considered to be a periodic payment if it represents amounts payable periodically that were due after the date of the order or written agreement that had fallen into arrears, or the lump sum amount is paid pursuant to a court order and in conjunction with an existing obligation for periodic maintenance, whereby the payment represents the acceleration, or advance, of future support payable on a periodic basis, for the sole purpose of securing the funds to the recipient. In either of the above situations, the lump sum payment will not, in and of itself, change the nature of the underlying legal obligation of periodic maintenance payments.
Since the lump sum in this case was not paid in lieu of amounts payable periodically as described in paragraph 22 of Interpretation Bulletin IT-530R, we are of the view that that amount is not a support amount within the meaning of subsection 56.1(4).
We hope that our comments are of assistance.
Best regards,
Guy Goulet CA M. Fisc.
for the Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.