Principal Issues: [TaxInterpretations translation]
1) Is the payment of arrears deductible in the case submitted, considering that the amount is established on the basis of each party's ability to pay?
2) Is the amount of support paid, which is less than that provided for in the order, deductible?
Position:
1) No in the case submitted.
2) Yes, the criteria of the definition of support in subsection 56.1(4) of the Act are satisfied.
Reasons:
1) In the case submitted, the amount paid is less than the amount of arrears of support payable under the prior order, the payment does not represent performance of the obligations under the prior order but a payment to obtain relief from the obligation under such order;
2) 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.
October 31, 2000
Jonquière Tax Centre Headquarters
Client Services Patrick Massicotte
(613) 957-9232
Attention: Ms. Martine Gautreau
2000-004842Request for technical interpretation:
Paragraph 60(b) of the Income Tax Act
This is in response to your request of September 20, 2000 for our opinion on the above subject.
FACTS
The essential elements of the documents you have sent us are as follows:
1. XXXXXXXXXX have been divorced since XXXXXXXXXX pursuant to a judgment rendered on XXXXXXXXXX;
2. This judgment established that custody of their XXXXXXXXXX children was entrusted to Madame and that Monsieur had to pay support of $XXXXXXXXXX per week for their needs;
3. The support was to be indexed annually in accordance with the indexation rate for Monsieur's salary as of the year XXXXXXXXXX;
4. At the end of XXXXXXXXXX, a conflict arose between Monsieur and Madame concerning Monsieur's obligation to support certain children who had become financially independent. From that time on, Monsieur paid only XXXXXXXXXX% of the support provided for in the XXXXXXXXXX judgment, i.e. $XXXXXXXXXX instead of $XXXXXXXXXX per week;
5. As a result of this dispute, Madame discovered that the indexation of the alimony had only been partially honoured by Monsieur since XXXXXXXXXX;
6. Two motions were therefore filed with the Quebec Superior Court. Madame filed a motion to fix support and a motion to claim arrears, while Monsieur sought a reduction in support since XXXXXXXXXX and sought recognition that he did not owe any arrears;
7. The Court issued an order on XXXXXXXXXX stating that there was no need to intervene with regard to the amount paid as support by Monsieur for the period from XXXXXXXXXX, namely the amount of $XXXXXXXXXX per week paid;
8. In addition, the Court ordered Monsieur to pay various amounts of support after that date. Accordingly, the following amounts are payable by him:
a) XXXXXXXXXX;
b) XXXXXXXXXX;
c) XXXXXXXXXX.
9. In addition, the order provided that accumulated arrears amounting to $XXXXXXXXXX were payable by Monsieur pursuant to the XXXXXXXXXX divorce judgment. However, given that Madame's income has increased over the years in question, the Court considered that those arrears should be reduced and that payment of an amount of $XXXXXXXXXX would be more equitable;
10. The Court therefore ordered Monsieur to pay the sum of $XXXXXXXXXX in two equal instalments in full discharge of the obligations otherwise imposed.
QUESTIONS
You asked whether the payment of arrears in the circumstances described above is deductible as support payments for the purposes of paragraph 60(b) of the Income Tax Act (the “Act”). In addition, you asked whether the payment of $XXXXXXXXXX per week as support, which is less than the amount provided for in the order of XXXXXXXXXX, is deductible.
OUR COMMENTS
The Canada Customs and Revenue Agency's position on support arrears is set out in paragraph 22 of Interpretation Bulletin IT-530, Support Payments.
In particular, it states the following:
“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.“
In the case submitted, it was established that the arrears amounted to $XXXXXXXXXX. They were discharged by the payment of a lesser amount amounting to $XXXXXXXXXX. This is not, therefore, payment of the amounts payable under the order that had otherwise fallen into arrears, but rather of a lesser amount intended to release Monsieur from the obligations imposed on him by the order of XXXXXXXXXX.
The payment of arrears in this case is not deductible for the purposes of paragraph 60(b).
With respect to the deductibility of the support amounts since XXXXXXXXXX which were lower than those payable under a written order or agreement, the issue is whether the payments were made pursuant to the XXXXXXXXXX order or under a new agreement.
In Valerie M. James v. Her Majesty The Queen, 85 DTC 5173 (Fed. T.D.), the issue was whether a support payment that was less than the amount set out in the order was still taxable. The Court stated:
"It is clear on the evidence, that the payments were made pursuant to a Court order. There had been some suggestion in the pleadings that because the amounts were less than those provided for in the Order, and often late, that they were not pursuant to the Order. The case of HER MAJESTY THE QUEEN v. BARBARA D. SILLS [reported at 85 DTC 5096] heard by the Court of Appeal of the Federal Court on the 28th of February 1984 resolved that matter, and payments such as those made here are clearly pursuant to the Order, even though often late and sometimes for smaller amounts."
In the case submitted, we are of the view that the payment by Monsieur of a sum of $XXXXXXXXXX per week of XXXXXXXXXX was made in fulfilment of the obligation imposed by the Order of XXXXXXXXXX. This amount was paid in respect of an amount payable as a periodic allowance to support the beneficiary and/or his children. The amount paid was therefore deductible pursuant to paragraph 60(b), although it was less than the amount payable.
For your information, a copy of this memorandum will be severed using the Access to Information Act and will be available in the Legislative Access Database (LAD) located on the mainframe of the Canada Customs and Revenue Agency. 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 Legislative Access Bank 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 (613) 957-0682. A copy that has been severed in accordance with the Privacy Act will be sent to you for delivery to the client.
We hope you find these comments helpful. Should you require any additional information regarding this matter, please do not hesitate to contact us.
Best regards,
Ghislain Martineau
Acting Manager
Business and Individuals Section
Business and Publications Division
Income Tax Rulings Directorate
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