Principal Issues: [TaxInterpretations translation]
Does the XXXXXXXXXX agreement have a "commencement day" given the changes made by the XXXXXXXXXX agreement, including that the child support payable from XXXXXXXXXX is $XXXXXXXXXX per month?
Position:
Yes
Reasons:
The effect of XXXXXXXXXX's written agreement was to change the amount of child support to $XXXXXXXXXX from the $XXXXXXXXXX per month previously payable under XXXXXXXXXX's agreement. In these circumstances, a "commencement day" is attributable to the XXXXXXXXXX agreement, under subparagraph (b)(ii) of the definition of "commencement day" in subsection 56.1(4) of the Act, and is the date that the $XXXXXXXXXX is first payable.
June 24, 2004
Ms. Lise Gélinas Headquarters Shawinigan-Sud Tax Services Office Danielle Bouffard T1 Client Services (613) 957-8953
2004-006838
Commencement day - Subsection 56.1(4) of the Income Tax Act
This is in response to your memorandum of March 22, 2004 in which you asked for our opinion on the above subject.
Situation
A separation agreement between the parties was signed on XXXXXXXXXX ("the XXXXXXXXXX agreement"). Among its provisions, the following is provided for in paragraphs XXXXXXXXXX:
XXXXXXXXXX.
An amended separation agreement was signed on XXXXXXXXXX ("the XXXXXXXXXX agreement"). Paragraphs XXXXXXXXXX of this agreement provide as follows:
XXXXXXXXXX.
According to the statement of payments submitted, child support payments stopped on XXXXXXXXXX. We understand that as of XXXXXXXXXX, one child returned to live with the child’s mother and that since XXXXXXXXXX, a payment of $XXXXXXX per month for one of the children was resumed.
Question
Does the XXXXXXXXXX agreement have a commencement day given the changes made by the XXXXXXXXXX agreement, including that the child support payable from XXXXXXXXXX is $XXXXXXXXXX per month?
Our Comments
Subsection 56.1(4) of the Income Tax Act (the "Act") defines the term "commencement day". To be subject to the new child support rules, i.e., to constitute non-taxable child support to the recipient and be non-deductible to the payer, the amount of child support must be paid under an agreement or order on or after the "commencement day". For the purposes of this letter, subparagraph (b)(ii) of that definition is relevant. Under subparagraph (b)(ii) of that definition, where the agreement is made before May 1997 and the agreement is varied after April 1997 to change the child support amounts payable, the day on which the first payment of the varied amount is required to be made becomes the "commencement day" of the agreement made before May 1997.
The effect of the XXXXXXXXXX agreement was to change the amount of child support previously payable, as set out in the XXXXXXXXXX agreement, from $XXXXXXXXXX per month prior to XXXXXXXXXX to an amount of $XXXXXXXXXX per month as of XXXXXXXXXX. For the purposes of the definition of "commencement day", the child support amount is considered to have been changed if the amount of child support paid is changed (from $XXXXXXXXXX to $XXXXXXXXXX in the situation presented) regardless of the number of children covered by that support. In these circumstances, a "commencement day" is attributable to the XXXXXXXXXX agreement, under subparagraph (b)(ii) of the definition of "commencement day" in subsection 56.1(4), and is the date XXXXXXXXXX, the date the $XXXXXXXXXX is first payable.
Consequently, the payment of $XXXXXXXXXX per month made in this situation since XXXXXXXXXX is an amount of child support that became payable under an agreement on or after the commencement day, as described in the description of element B in paragraphs 56(1)(b) and 60(b), and is to be excluded from the recipient's income and the payer's deductible amount respectively.
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope that these comments are of assistance. Should you require further information on the content of this document, please do not hesitate to contact us.
Ghislaine Landry, CGA
for the Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch