LANGIND E
DOCNUM 2010-0356151E5
REFDATE 100604
SUBJECT Deductibility of payment to former spouse
SECTION 56.1(4), 60(b)
Please note
at the time
Prenez note
représenter
that the following document, although believed to be correct
of issue, may not represent the current position of the CRA.
que ce document, bien qu'exact au moment émis, peut ne pas
la position actuelle de l'ARC.
PRINCIPAL ISSUES: Whether an amount representing a share of the
taxpayer's pension value and severance amount paid to the taxpayer's
former spouse in accordance with a Change Order to their Divorce Order is
deductible to the taxpayer
POSITION:
No.
REASONS:
A payment in satisfaction of property rights arising from
marriage is considered to be
capital in nature. Such a payment does not qualify as a "support amount"
for the purposes of paragraph 60(b) of the Act and therefore is not
deductible in calculating the taxpayer's income.
XXXXXXXXXX 2010-035615
June 4, 2010
Dear XXXXXXXXXX :
Re:
Deductibility of Payment to Former Spouse
We are writing in response to your letter dated January 25, 2010. You
have asked for our views regarding the deductibility of an amount paid by
you to your former spouse in XXXXXXXXXX pursuant to a Change Order.
In your letter, you advise that you and your former spouse signed a Change
Order on XXXXXXXXXX . The Change Order referenced paragraph XXXXXXXXXX of
your Divorce Order dated XXXXXXXXXX , which dealt with your severance
package. Pursuant to the Change Order, you agreed to make a one-time
payment of $XXXXXXXXXX to your former spouse and that the Change Order
would finalize all legal dealings between you and your former spouse. You
note that the payment represents a share of your pension value and a share
of the severance pay you received in XXXXXXXXXX plus interest for
XXXXXXXXXX years. The amount was paid on XXXXXXXXXX and you would like
to know if you can claim a deduction for the payment in your XXXXXXXXXX
tax return.
Written confirmation of the tax implications inherent in particular
transactions may only be provided by this Directorate where the
transactions are proposed and are the subject matter of an advance income
tax ruling submitted in the manner set out in Information Circular 70-6R5,
Advance Income Tax Rulings, dated May 17, 2002. This Information Circular
and other Canada Revenue Agency publications can be accessed on the
Internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where the
particular transactions are completed, the inquiry should be addressed to
the relevant Tax Services Office. However, we are prepared to provide the
following general comments, which may be of assistance.
Our Comments
For a spousal support payment to be deductible by the payer under
paragraph 60(b) of the Income Tax Act (the "Act") and includable in the
recipient's income under paragraph 56(1)(b) of the Act, the payment must
meet the definition of "support amount" in subsection 56.1(4) of the Act.
The definition of "support amount" includes both child support and spousal
support. In general, an amount is a spousal support amount if the amount
is:
*
payable to or receivable by the recipient;
*
payable as an allowance on a periodic basis;
*
for the maintenance of the recipient;
*
available for the recipient's discretionary use; and
*
payable under an order of a competent tribunal or under a written
agreement and the payer and the recipient are living separate and apart
because of a breakdown of their marriage or common-law partnership.
As noted in paragraph 21 of Interpretation Bulletin IT-530R, Support
Payments, where a payment is made to release the payer from any future
obligations to pay maintenance, the payment will not be considered an
allowance for maintenance and therefore will not qualify as a "support
amount". Further, when a payment to a spouse or former spouse is in
satisfaction of property rights arising from the marriage, the payment is
of a capital nature and thus cannot be considered to be an allowance for
maintenance.
Whether a particular payment constitutes a spousal support amount is a
question of fact requiring a review of all relevant facts and
documentation (such as the Divorce Order). Based on the information
provided in your letter, the payment representing a share of your pension
value and a share of your severance pay does not appear to meet the
definition of "support payment" in subsection 56.1(4) of the Act. The
amount is not payable on a periodic basis. It appears to be a payment in
satisfaction of property rights arising from a marriage, rather than an
allowance for the maintenance of your former spouse. Also, by making the
payment, all legal dealings between you and your wife have been finalized
according to the Change Order. Accordingly, it is our view that the
payment is not deductible under paragraph 60(b) of the Act.
For more information on what constitutes a support payment, please refer
to IT-530R and Guide P102, Support Payments.
We trust the above comments address your concerns.
Yours truly,
Jenie Leigh
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch