| February 12, 1990 | |
| Publications Division | Specialty Rulings |
| Roy C. Shultis, Director | Directorate |
| J.A. Szeszycki | |
| Attention: T. Bryant | 957-2103 |
| File No. 7-4695 |
SUBJECT: Interpretation Bulletin Project Number 1420 Alimony and Maintenance Revision to IT-118R2 (Version 6)
We are responding to your memorandum of February 2, 1990 in which you requested that we review the recent rewrite of our previously submitted version (version 2) of the subject IT Bulletin Project for its technical accuracy.
The comments noted below were discussed (Bryant/Szeszycki) on February 7 and it was agreed that appropriate changes could be made, without detracting from the readability of the bulletin material.
The following points were covered: (all paragraph references are to those in version 6)
| Para | Comments | |
| 1. | 1 | Reference is made to amounts being deductible under Section 60.1. Section 60.1 is not a deducting provision but rather contains qualifying provisions to deductibility entitlement under paragraph 60(b),(c), or (c.1). Similarly, Section 56.1 is not a taxing section. |
| 2. | 3(c)(i) | The phrase "or deemed to be paid" has been deleted. Although not a serious concern in this paragraph in view of the full discussion of the section 60.1(1) deeming provisions beginning with paragraph 15, see our further comments under item 11. |
| 3. | 5 | The use of the word "formal" in the phrase "formal written document" may leave the reader with the impression that the agreement must be prepared by a legal representative when that is not the case. The simple deletion of that word would be appropriate. |
| 4. | 5 | One of the essential elements of a valid separation agreement, as determined by the courts in Smith vs MNR 79 DTC 827 and Kepel vs MNR 79 DTC 199, is that the parties agree in writing to live separate and apart. |
| 5. | 5 | The first sentence describes a court order (referred to in paragraphs 60(b),(c), and (c.1)) as being made by a court or competent tribunal inside or outside Canada. The orders made under paragraph 60(c.l), however, must be made by a competent tribunal in accordance with the laws of a province thereby not recognizing similar orders made outside of Canada. It is suggested that the phrase "in or outside Canada" be deleted. |
| 6. | 7 | The first paragraph indicates that payments made prior to for "earmarked expenses" were not considered to be allowances and thus not deductible to the payer. They were not considered to be allowances but certain of those expenses were deductible to the payer under subsection 60.1(2) if the criteria in that provision were otherwise met. It is suggested that the statement could be qualified by the inclusion of a phrase like "except as provided in subsection 60.1(2), see paragraph 18." |
| 7. | 7 | For greater clarity the example used in the March, 1986 to December 1987 segment should be extended to emphasize that the payments would be deductible to the payer as an allowance that was otherwise deductible under paragraphs 60(b),(c), or (c.1). |
| 8. | 7 | In the last sentence of the above segment reference is made to written agreements entered into within that time period. The Department takes the position that where the parties have had an opportunity to amend such an agreement after 1987, the post-1987 definition of allowance will apply. Consequently, the phrase "or last amended" should follow the words "entered into" in that sentence. |
| 9. | 12(c) | The first statement should be reworded since it may be interpreted to mean that if the payment constitutes a substantial portion of the recipient taxpayer's income it would not be considered an allowance for maintenance. |
| 10. | 15 | This paragraph begins the discussion on the treatment of third party payments; specifically, the application of subsection 60.1(1). If an example is to be used in this segment it should emphasize the element that differentiates an indirect payment to which this provision applies from one to which subsection (2) applies. In order for subsection (1) to apply the payments may be redirected by the recipient spouse at his or her discretion. |
| 11. | 15 | A not uncommon situation which is referred to in paragraph 17(c) of Version 2 has not been reflected in Version 6 and its deletion may spark a number of enquiries. Where the Court considers it necessary, under the particular circumstances of a separation or divorce amounts may be ordered paid directly to the Court for forwarding to the ultimate recipient spouse. These are normally not "earmarked" expense payments but rather general maintenance allowances and under subsection 60.1(1) are deemed to be paid to the recipient spouse. |
| 12. | 17 | The paragraph appears to be a bit confusing. The decision has no effect on third party payments described in subsection 60.1(1) since these payments in order to be deductible under 60(b),(c), or (c.1) would have been part of what is already considered a maintenance allowance. The need for the paragraph should be reconsidered. |
| 13. | 19 | The third sentence should be extended or reworded to include the fact that in addition to the payment being automatically deemed to be an allowance payable on a periodic basis it is also deemed to be received by the spouse, former spouse or common-law spouse. |
| 14. | 19 | The statement in the last sentence that "as long as the parties specify in the agreement. . . should be changed to "as long as it is specified in the agreement or order..." |
If any further clarification is required please contact Jack Szeszycki at 957-2103.
B.W. DathDirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch