2014-0545611E5 Lump-sum support payments

Principal Issues: 1. Taxation of a lump-sum payment to a former spouse or common-law partner.

Position: 1. No position taken. General information provided.

Reasons: See below.

Author: Dubis, Robert
Section: 60(b); 56(1)(b); 56.1(4)

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                                                                                                                                                 2014-054561
                                                                                                                                                 Robert Dubis, CPA, CA

September 25, 2014

Dear XXXXXXXXXX:

Re:   Taxation of support payments

This is in response to your correspondence of September 11, 2014, regarding the taxation of a lump-sum payment to your former spouse (or common-law partner).  You have told us that you were required by court order to make the payment for spousal support.  It is your view that the lump-sum payment to your former spouse (or common-law partner) should be deductible under the Income Tax Act (“Act”).

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

The Canada Revenue Agency’s (CRA) general views regarding the taxation of support amounts can be found in Income Tax Folio S1-F3-C3: Support Payments, available at www.cra-arc.gc.ca.  As noted in paragraph 3.33 of folio S1-F3-C3, whether a support payment is taxable to the recipient and deductible by the payer is determined solely by the Act with consideration of the requirements in the court order or written agreement.  Payments which meet all of the requirements of the Act, as explained in folio S1-F3-C3, are deductible by the payer under paragraph 60(b) and are included in the income of the recipient under paragraph 56(1)(b) of the Act.  Where a court order or written agreement requires payment of support for a spouse or common-law partner, it must be registered with the CRA by filing a Form T1158, Registration of Family Support Payments.  The registration process assists the CRA in their review of tax returns for both parties.

In order for an amount paid for spousal support to be deductible under paragraph 60(b) of the Act, it must first qualify as a “support amount.”  A support amount is defined in subsection 56.1(4) of the Act.  The requirements of that definition are explained in paragraph 3.10 of folio S1-F3-C3.  If a particular payment does not qualify as a support amount, the payer is not entitled to the deduction provided by paragraph 60(b) and the recipient is not required to include the receipt in income under paragraph 56(1)(b) of the Act.

Generally, an amount paid as a single lump sum does not meet the definition of a support amount because it is not an amount payable on a periodic basis.  However, a lump-sum payment for support may be regarded as a qualifying periodic payment in certain circumstances.  Please refer to the explanation in paragraphs 3.44 through 3.46 of folio S1-F3-C3 for the CRA’s views on lump-sum payments for support.

Whether a particular payment meets the requirements of the Act to be deductible as a spousal support amount is a question of fact.  According to the information you provided to us, the lump-sum payment you were required to make appears to relate to a period before the date of the court order and gives consideration to further adjustments, including a discount for estimated income taxes and a reduction to reflect a claim for occupational rent.  Based on this information, it is unlikely that the lump-sum payment meets all of the requirements to be a support amount as defined in the Act.   

Unfortunately, privacy considerations do not allow this Directorate to search your file for personal information.  Any questions you have about your personal tax situation should be addressed by calling the CRA at 1-800-959-8281.  Where taxpayers disagree with the CRA’s assessment, they have the right to a formal review.  Please see brochure P148, Resolving your dispute: Objection and appeal rights under the Income Tax Act for more information on this process.

We trust that these comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate

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