920074
A. Humenuk
(613) 957-2134
24(1)
19(1)
February 20, 1992
Dear Sirs:
Re: Matrimonial Property Settlements
This is in reply to your letter of December 20, 1991 concerning the taxation of a lump sum property settlement and interest received by a spouse or former spouse in exchange for the release of marital and support rights.
You have asked for confirmation that a spouse's release of marital and support rights in exchange for a lump sum property settlement does not give rise to a taxable disposition of property. You have also asked for confirmation that the amount of "pre-judgement interest" ordered by the court in respect of a court ordered settlement is neither deductible to the payor nor included in the recipient's income.
We agree that the release of marital and support rights under the relevant family law legislation does not give rise to income or capital gains for tax purposes to the holder of those rights except to the extent provided by paragraph 56(1)(b), (c) or (c.1) of the Income Tax Act.
With respect to your query on the taxability of interest paid to the recipient, we are not prepared to extend our position in respect of pre-judgement or pre-settlement interest for personal injury or wrongful dismissal to other types of settlements such as matrimonial settlements. It is a question of fact as to whether a particular amount awarded by the court or agreed to in a settlement is interest or whether it is an increase in the amount of the lump sum settlement. To the extent that the amount is properly characterized as interest, it is included in the recipient's income under paragraph 12(1)(c) of the Act.
With respect to the deductibility of any interest so charged, it is our view that such interest cannot be said to be incurred to earn income and thus is not deductible in computing income.
We trust our comments will be of assistance to you.
Yours truly,
J.A. Szeszyckifor DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch