19 January 2001 Internal T.I. 2000-0049187 F - PENSION ALIMENTAIRE-ACCORD SUBSEQUENT -- translation

Principal Issues: [TaxInterpretations translation]

Can payments made under an agreement entered into on XXXXXXXXXX providing for the reduction of child support payable under a previous agreement, established in XXXXXXXXXX and confirmed by the Superior Court of Quebec in XXXXXXXXXX, be considered to have been made on or after a commencement day, for the purposes of subsection 56.1(4) of the Act?

Position:

Yes.

Reasons:

The written agreement is made after April 1997 and therefore has a commencement day corresponding to the date on which it was made. The effect of this subsequent agreement is to change the total child support amounts payable to the recipient. Under subparagraph (b)(iii) of the definition "commencement day" in subsection 56.1(4), the order made in XXXXXXXXXX would also have a commencement day corresponding to the date of the subsequent agreement, i.e. XXXXXXXXXX.

	January 19, 2001

	Jonquière Tax Centre    	             Headquarters
	Client Services   	                   Patrick Massicotte
                                                 (613) 957-9232
	Attention: Ms. Martine Gautreau
		                                     File #2000-004918

Request for technical interpretation:

Subsection 56.1(4) of the Income Tax Act

This is in response to your request received on September 27, 2000 for our opinion on the above subject.

FACTS

The essential elements of the documents submitted are as follows:

1. A provisional and ancillary relief agreement was entered into on XXXXXXXXXX between XXXXXXXXXX;

2. The agreement provided, among other things, for the division of matrimonial property, custody of the two (2) minor children and an amount payable for the support of the children. It provided that XXXXXXXXXX was to pay support of $XXXXXXXXXX per week to XXXXXXXXXX from XXXXXXXXXX, indexed annually;

3. A divorce judgment was rendered by the Superior Court on XXXXXXXXXX, ratifying the XXXXXXXXXX agreement and ordering the parties to comply with it;

4. In XXXXXXXXXX, the parties agreed to amend the terms of the XXXXXXXXXX agreement and wished to settle the consequences of this amendment amicably;

5. A written agreement was therefore reached between the parties on XXXXXXXXXX with the effect of changing the amount of support payable by XXXXXXXXXX from $XXXXXXXXXX per week, indexed annually, to a fixed sum of $XXXXXXXXXX per week. This agreement has not been submitted to the court for ratification.

QUESTION

You asked us whether the amount of $XXXXXXXXXX per week paid pursuant to the written agreement of XXXXXXXXXX constitutes child support paid under an agreement on or after the commencement day, which is non-taxable and non-deductible for the purposes of paragraphs 56(1)(b) and 60(b) of the Income Tax Act (the “Act”).

OUR COMMENTS

Paragraph 56(1)(b) provides that the amount of a support payment received must be included in a taxpayer's income except to the extent that it is child support paid under an agreement or order on or after its commencement day. Similarly, paragraph 60(b) provides that a support payment may be deducted unless it is child support that became payable under an agreement or order on or after its commencement day.

To determine the tax consequences of the payments described above, it is necessary to determine under which agreement or order the payer is required to make the payments and whether that agreement or order has a “commencement day”. XXXXXXXXXX

XXXXXXXXXX

Paragraph (a) of the definition of “commencement day” in subsection 56.1(4) provides that the commencement day of an agreement or order made after April 1997 is the day on which it is made. Paragraph (b) of this definition concerns situations where an agreement or order is established before May 1997.

Based on the documentation submitted, we believe that child support payments made after XXXXXXXXXX are made pursuant to the agreement reached between the parties on XXXXXXXXXX and we are of the view that, consequently, a commencement day is attributable to that agreement, corresponding to the date on which the agreement was established.

Furthermore, although the order established in XXXXXXXXXX is not in itself modified by the subsequent written agreement, the latter has had the effect of changing the total child support amounts previously payable, as established in the XXXXXXXXXX agreement. In those circumstances, a commencement day is also attributable to the order, as well as to the agreement to which it refers, under subparagraph (b)(iii) of the definition “commencement day” in subsection 56.1(4), and corresponds to the commencement day of the subsequent agreement, i.e. XXXXXXXXXX.

Under the definition of “child support”, the amount of $XXXXXXXXXX per week payable under the written agreement of XXXXXXXXXX constitutes an amount of child support.

Consequently, the payments of $XXXXXXXXXX per week made in this situation constitute child support amounts that became payable under an agreement on or after the commencement day, as described in element B of paragraphs 56(1)(b) and 60(b), and must be excluded from the recipient's income and the payer's deductible amount respectively.

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 of assistance. Should you require any additional information regarding this matter, 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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