Principal Issues: [TaxInterpretations translation]
Is an amount paid in full satisfaction of past and future child support obligations deductible to Monsieur pursuant to paragraph 60(b) of the Act and must that amount be included in Madame's income pursuant to paragraph 56(1)(b) of the Act?
Position:
No.
Reasons:
Paragraph 22 of Interpretation Bulletin IT-530 provides that a lump sum payment is not considered to be a support amount (as defined in subsection 56.1(4) of the Act) 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. In the present situation, we are of the opinion that it is such a payment.
February 19, 2003
Ms. Sylvie Déziel Headquarters Sylvie Labarre, CA Estrie-Mauricie Tax Services Office (613) 957-8953 Trois-Rivières Office Client support 2002-016996
Arrears - maintenance payments
This is further to your fax of November 12, 2002, in which you asked for our opinion on the characterization of a lump sum payment as support.
Under a court order dated XXXXXXXXXX, Monsieur was required to pay $XXXXXXXXXX per month to Madame to support her two children. Monsieur made the monthly payments until XXXXXXXXXX. On XXXXXXXXXX, Monsieur owed Madame $XXXXXXXXXX in arrears.
On XXXXXXXXXX, Monsieur and Madame signed a written agreement whereby they agreed that Monsieur would pay Madame the sum of $XXXXXXXXXXX in full satisfaction of past and future child support obligations. The written agreement also provided that Madame was to reimburse Monsieur if he became obligated to pay child support ("the Mother will reimburse and indemnify the Father in the event that at any time in the future he has to pay child support for the support of the children of the marriage").
You wish to know whether Madame had to include the amount of $XXXXXXXXXX in her income pursuant to paragraph 56(1)(b) of the Income Tax Act (the "Act") and whether Monsieur could deduct that amount pursuant to paragraph 60(b).
Our Comments
Paragraph 22 of Interpretation Bulletin IT-530 provides that a lump sum payment is not considered to be a support amount (as defined in subsection 56.1(4) of the Act) 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.
In the current situation, we understand that the lump sum payment discharged Monsieur from his future obligation to pay periodic allowances as well as from his obligation in respect of arrears. Arguments could be advanced to the effect that the court order was still valid with respect to Monsieur's future obligations. Despite those arguments, we are of the view that 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.
As a result, Monsieur was not entitled to a deduction pursuant to paragraph 60(b) for the payment of $XXXXXXXXXX and Madame was not required to include this amount in her income pursuant to paragraph 56(1)(b).
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We hope you find these comments of assistance. Should you require any additional information regarding 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 Legislation Branch
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