Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether the new child support rules apply in a particular situation.
Position TAKEN:
They do not apply.
Reasons FOR POSITION TAKEN:
In the situation under review, the final post-April 1997 court order (the "Fourth Order") does not itself impose an obligation to pay child support, but instead sets aside the previous post-April 1997 court order (the "Second Order"), while restoring the original pre-May 1997 court order (the "Original Order") from the time of inception of the Second Order. Consequently, in our view, the result is that the Original Order has remained legally effective from its inception, such that the legal obligation to pay child support has remained under the Original Order. In addition, the Fourth Order does not change in any way the amount of child support provided for in the Original Order. Accordingly, as the legal obligation to pay child support and the amount of child support have remained as provided for in the Original Order, it is our view that the new child support rules have not been triggered in the above situation.
November 8, 2000
Shawinigan-South Tax Centre HEADQUARTERS Appeals Division M. Azzi 957-8972 Attention: Helene Lamy 2000-002439
Child Support - XXXXXXXXXX
This is in reply to your memo of April 14, 2000, requesting our views on whether the new child support rules apply in a particular situation. We apologize for the delay in responding to your request.
Our understanding of the facts is as follows:
1. Under a XXXXXXXXXX order of the Supreme Court of B.C. (the "Original Order"), XXXXXXXXXX was awarded interim custody of her three children, and XXXXXXXXXX was required to pay to XXXXXXXXXX interim child support in the amount of $XXXXXXXXXX/month ($XXXXXXXXXX/child), as well as interim spousal support in the amount of $XXXXXXXXXX/month, on the first day of each month commencing XXXXXXXXXX.
2. XXXXXXXXXX were subsequently divorced pursuant to a divorce order (the "Divorce Order") of XXXXXXXXXX; however, it is our understanding that you were not provided with a copy of this order.
3. In XXXXXXXXXX entered into an agreement (the "Agreement") regarding the division of their assets. The Agreement also provided, inter alia, that XXXXXXXXXX would maintain the children on the medical plan of the province in which they reside, under his employer's medical and dental plans (with XXXXXXXXXX being responsible for the deductibles under the employer's plans) and that XXXXXXXXXX would be equally responsible for dental care costs not covered by the dental plan.
4. Upon application by XXXXXXXXXX the Supreme Court of B.C. ordered (the "Second Order") XXXXXXXXXX to pay XXXXXXXXXX child support totalling $XXXXXXXXXX/month commencing XXXXXXXXXX and payable on the first day of each month thereafter. The Second Order also provided that XXXXXXXXXX would continue to pay spousal support of $XXXXXXXXXX/month until XXXXXXXXXX, at which time the obligation to pay spousal support would end.
5. In XXXXXXXXXX applied to the Court of Appeal for B.C. to obtain a stay of execution of the Second Order. As a result, in an order dated XXXXXXXXXX (the "Third Order"), that Court granted a partial stay of the Second Order, whereby it ordered that, pending the hearing of an appeal of the Second Order (in the Court of Appeal for B.C.), monthly child support was fixed at $XXXXXXXXXX/child for a total monthly child support of $XXXXXXXXXX, effective XXXXXXXXXX.
6. In an order of XXXXXXXXXX (the "Fourth Order"), the Court of Appeal for B.C. allowed XXXXXXXXXX appeal of the Second Order. As result, the Fourth Order ordered that the Second Order reducing the amount of child support be set aside and that the Original Order be restored commencing XXXXXXXXXX.
You question whether, in the above circumstances, the new child support rules have been triggered. You also request confirmation that the payment of medical insurance pursuant to the Agreement does not qualify as a child support amount.
Our Comments
As you know, the basic thrust of the new child support provisions is to eliminate both the requirement to include child support in the custodial or recipient parent's income and the deduction available to payers of child support. Generally, the new rules apply in respect of child support amounts payable and receivable pursuant to a written agreement or court order made after April 1997. However, by virtue of paragraph (b) of the definition of "commencement day" in subsection 56.1(4) of the Income Tax Act (the "Act"), the new rules also apply to child support amounts payable and receivable under an agreement or order made before May 1997 if:
(i) the parties both sign and file an election with the Canada Customs and Revenue Agency agreeing that the new tax rules will apply to the existing agreement or order as of a specified date (no earlier than May 1, 1997),
(ii) the agreement or order is varied after April 1997 to change the child support amounts payable to the recipient,
(iii) another agreement or order is made after April 1997 and the effect of the subsequent agreement or order is to change the total child support amounts payable to the recipient by the payer, or
(iv) the agreement or order specifically provides that the new tax rules will apply as of a specific date (no earlier than May 1, 1997).
Accordingly, whether a post-April 1997 order or agreement triggers the application of the new child support rules is dependent on, inter alia, the legal relationship between the order or agreement and any pre-May 1997 order or agreement. In particular, such a determination is dependent on whether the post-April 1997 order or agreement supersedes other orders or agreements, whether an obligation to pay child support exists under the post-April 1997 order or agreement, or whether it changes in any way child support amounts. In the above situation, as the Fourth Order does not itself impose an obligation to pay child support, but instead sets aside the Second Order regarding child support, while restoring the Original Order from the time of inception of the Second Order, in our view, the result is that the Original Order has remained legally effective from its inception, such that the legal obligation to pay child support has remained under the Original Order. In addition, the Fourth Order does not change in any way the amount of child support provided for in the Original Order. Accordingly, as the legal obligation to pay child support and the amount of child support have remained as provided for in the Original Order, it is our view that the new child support rules have not been triggered in the above situation. However, we would caution that, as the above determination is highly dependent on the legal relationship between the various orders and agreements, it would be advisable to obtain the Divorce Order to ensure that it is not in conflict with the other orders in regards to child support.
As regards the payments for the medical insurance or other medical or dental expenses referred to in the Agreement, we agree that they do not qualify for deduction as a "support amount", as defined in subsection 56.1(4) of the Act, as, inter alia, XXXXXXXXXX does not have discretion as to the use of these amounts. In order for such amounts to qualify as support amounts, the Agreement would have had to specifically state that subsections 56.1(2) and 60.1(2) of the Act apply to any amount paid or payable under the Agreement.
We trust that these comments will be of assistance.
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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