Principal Issues: [TaxInterpretations translation]
Can subsections 56.1(3) and 60.1(3) of the Act apply in a situation where past payments are not referred to in a court order but are the subject of a written document signed by both parties involved.
Position:
No. Question of fact
Reasons:
In this case, amending the Judgment by written agreement does not appear to reflect the intention of all parties involved. It is the Judgment of the Court that remains binding.
December 1, 2000
JONQUIÈRE TAX CENTRE Headquarters
Client Services Martine Filiatrault, CA
Tel.: (613) 957-2121
Attention: Ms. Martine Gautreau
2000-004843Request for Interpretation
Support - Prior payments - Subsections 56.1(3) and 60.1(3)
This is further to your requests of September 20 and October 2, 2000 for our opinion on the above subject.
Facts
1. On XXXXXXXXXX, two former spouses signed an agreement ancillary to their separation, which was confirmed by the Superior Court of Quebec (the “Judgment”).
2. In paragraph XXXXXXXXXX, the Judgment provided that “the defendant will pay the plaintiff support for herself and her minor child of $XXXXXXXXXXX per week, payable in two equal and consecutive instalments of XXXXXXXXXX each month.”
3. In paragraph XXXXXXXXXX, the Judgment stated the following: “Each party acknowledges that this draft agreement has been explained and faithfully represents the expression of their freely expressed will and choices without duress or pressure from either party;”.
4. The maintenance payments began before the date of the Judgment, i.e. on XXXXXXXXXX, but the Judgment made no mention of this. The defendant (“Monsieur”) was paying $XXXXXXXXXX per week to the plaintiff (“Madame”) as now provided for in the Judgment.
5. In XXXXXXXXXX, Monsieur attempted to deduct the total amount of support payments he had made during the year (since XXXXXXXXXX). The Agency then informed him that he could not deduct those amounts but that it would be possible if he and Madame signed an agreement (the “Agreement”) to recognize the payments made before the date of the Judgment as being support payments. However, they failed to mention that the Agreement should clearly indicate that payments made prior to the date of the Judgment should be considered as having been paid under the Judgment in order for subsections 56.1(3) and 60.1(3) of the Income Tax Act (the “Act”) to apply.
6. On XXXXXXXXXX, Monsieur and Madame signed the Agreement, which stated the following:
“I, XXXXXXXXXX, pay an amount of $XXXXXXXXXX per week from XXXXXXXXXX to XXXXXXXXXX. All in accordance with a tax-deductible agreement that she herself has declared on her XXXXXXXXXX tax return.”
7. Following the filing of the Agreement, the Agency granted Monsieur a deduction for support equal to the total amounts paid during the year XXXXXXXXXX. Madame included the same amount in her income.
8. For the year XXXXXXXXXX, Monsieur's return was audited by the processing review section and he was denied the support deduction he had claimed.
9. Following the recommendations of her accountant, Madame did not include in her income the amounts of support she received in the years XXXXXXXXXX.
Questions
You wish to know whether subsections 56.1(3) and 60.1(3) of the Act apply to this situation.
Our Opinion
Subsection 56.1(3) provides as follows (subsection 60.1(3) provides the same provisions but at the level of the deduction for the payer of support payments):
"...where a written agreement or order of a competent tribunal made at any time in a taxation year provides that an amount received before that time and in the year or the preceding taxation year is to be considered to have been paid and received thereunder,
(a) the amount is deemed to have been received thereunder; and
(b) the agreement or order is deemed, except for the purpose of this subsection, to have been made on the day on which the first such amount was received (...)"
Subsections 56.1(3) and 60.1(3) provide that payments made before the date of the order may be recognized as part of the order if the order clearly provides that amounts received before that time are deemed to have been paid and received under the order. In this case, the intention of the parties involved at the time the order was signed must be respected. For the purposes of subsections 56.1(3) and 60.1(3), the Agency could also accept that an amendment to the order, ratified by the court, could be made to clarify the initial intention of the parties, i.e., to recognize the previous payments as part of the initial order. However, it may be difficult to ascertain the intention of the parties, especially in the presence of facts that may be interpreted as contradictory. In such a situation, it is necessary to turn to the written documents and the facts to try to establish the intentions.
In this case, the Judgment does not mention that the support payments actually began on XXXXXXXXXX. Monsieur attempted to have the payments recognized prior to the date of the Judgment by having Madame sign the Agreement. However, it is not clear that Madame intended to recognize the support payments as taxable to her and deductible to Monsieur for years other than XXXXXXXXXX. In fact, according to the information you provided, Madame included the support payments in her income for XXXXXXXXXX following Monsieur's recommendations. In addition, Madame did not include the support payments she received for the years XXXXXXXXXX since the Judgment was signed after April 1997.
In our view, the Agreement does not clearly indicate that the two parties intended to amend the Judgment to recognize payments prior to the date of the Judgment, which is an essential condition for subsections 56.1(3) and 60.1(3) to apply. In addition, the only indication of a clear intention that we have been able to observe is that expressed in paragraph XXXXXXXXXX of the Judgment (see point 3 above). For all these reasons, we are of the view that subsections 56.1(3) and 60.1(3) cannot apply in the present situation.
However, for the XXXXXXXXXX taxation year, we are of the view that there are arguments allowing us to maintain the assessments, despite the fact that subsections 56.1(3) and 60.1(3) do not apply in this situation. In fact, the Agreement seemed to establish the common intention of the parties for the year XXXXXXXXXX. However, in light of the information gathered, we are of the view that this intention cannot be retained as being that of the years subsequent to XXXXXXXXXX.
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 Madame 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.
Best regards,
Ghislaine Landry, CGA
Interim Manager
Business and Individuals Section
Business and Publications Division
Income Tax Rulings Directorate
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