Principal Issues: [TaxInterpretations translation]
Do the amounts derived from dividing the income from a pension fund constitute amounts paid as alimony?
Position:
Yes, in the case of a separation agreement, but not in the case of a divorce decree.
Reasons:
According to the separation agreement and the intention of the parties at the time of the agreement, amounts from the taxpayer's pension fund paid to the former spouse constitute a method of paying support. According to the divorce decree, there was a division of pension entitlements and each of the former spouses included in their as pension income under subparagraph 56(1)(a)(i) of the Act, half of the pension income attributable to them under the decree.
January 7, 2003
Shawinigan-Sud Tax Centre Headquarters
T1 Client Services (541 3-1) Lucie Vermette, CGA
(613) 957-2092
Attention: Ms. Danielle Gélinas2002-016834
Request for a technical interpretation concerning amounts paid as support
This is in response to your letter of October 10, 2002 and your fax of October 29, 2002, in which you requested our opinion on the above subject.
FACTS
According to the legal separation judgment of XXXXXXXXXX ratifying the draft separation agreement signed by the parties on XXXXXXXXXX, the taxpayer and the taxpayer's former spouse agreed to share equally the income from the pension fund of the taxpayer's former employer. In another paragraph of the draft agreement, the parties indicated that the division of the pension fund was made as alimony.
According to the divorce decree pronounced in May XXXXXXXXXX ratifying the consent signed by the parties in XXXXXXXXXX, it was provided that the ex-spouses were to share equally the pension rights held by the taxpayer, accumulated between XXXXXXXXXX and XXXXXXXXXX (date of the legal separation decree) and that each irrevocably renounced any future claim to alimony from the other.
QUESTION
Do the amounts derived from the division of the income of the pension fund constitute amounts paid as alimony?
OUR COMMENTS
Paragraph 11 of Interpretation Bulletin IT-499R states, among other things, that if there is a division of pension benefits on a marriage breakdown, generally the pension benefits legislation of a province provides the terms under which a portion of the pension benefits of a member of a pension plan may be paid to a spouse or former spouse under a domestic contract, a written separation agreement, or under a divorce decree or court order under a provincial family law act relating to a division of property on the breakdown of the marriage. Upon a division of pension benefits in these circumstances, the portion received by each spouse or former spouse at a time permitted under the pension benefits legislation of the province is included in the income of that spouse or former spouse as a pension benefit under subparagraph 56(1)(a)(i) of the Income Tax Act (the "Act"). In addition, it is stated that the above tax treatment applies even if the administrator of the pension plan issues one cheque to the plan member who is required to apportion the payments.
In the XXXXXXXXXX Separation Agreement you submitted to us, it is not clear whether the superannuation amounts paid to the former spouse are paid as a division of the taxpayer's superannuation in the context of IT-499R. Rather, it appears to be a division agreed to by the parties for the purpose of supporting the former spouse. Indeed, although the agreement states that "The taxpayers agree to share equally the income as a pension, following the previous employment held by the applicant", it is specifically stated in paragraph 13 of the same agreement that the division of the pension fund is made as alimony.
Given the ambiguity of the agreement, the situation could be interpreted in two ways, either that the retirement pension amount is paid as alimony to the ex-spouse, or that the retirement pension is really a retirement pension to which the ex-spouse is entitled by virtue of a division of family property. It is difficult to interpret such an agreement, since the clauses are not clear. In a situation such as this, it is necessary to try to establish the real intention of the parties. Paragraph 13 of the agreement clearly states that the division of the pension fund is for alimony purposes. This clause would not have been necessary if this was not the intention of the parties. In addition, it appears that taxpayers have always treated this amount as alimony for tax purposes in prior years. For these reasons, we are of the view that there are good arguments for maintaining the position previously taken to the effect that this is an alimony payment.
However, the conclusion is not the same following the divorce judgment. In fact, in the agreement on accessory measures to the divorce judgment pronounced in XXXXXXXXXX, it is stated that the former spouses will share equally the pension rights held by the taxpayer, accumulated during the period when they were living together. Furthermore, in another paragraph of the agreement, it is stated that each renounces any claim to future maintenance from the other. It is clear from this judgment that what is involved is not alimony, but rather a retirement pension. Following the divorce decree, it is our opinion that each ex-spouse should include in the individual’s income as pension income, pursuant to subparagraph 56(1)(a)(i), half of the pension income attributable to the individual under the divorce decree, since the terms of IT-499R apply from that date. The amount that the ex-spouse would include in income could give rise to entitlement to the pension credit under subsection 118(3).
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 Customs and Revenue Agency's 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 CRA 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 that has been severed in accordance with the Privacy Act will be sent to you for delivery to the client.
Should you require any additional information regarding this letter, please do not hesitate to contact us.
Best regards,
Ghislaine Landry, CGA
Manager
Individuals, Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate
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