21 July 2014 External T.I. 2014-0530261E5 - support amount

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Is a lump-sum payment to a recipient by her former spouse that was not paid pursuant to a written agreement or a court order, a support amount?

Position: The amount paid does not appear to be a support amount and therefore would not be taxable to the recipient under paragraph 56(1)(b) of the Act.

Reasons: A lump-sum payment by a former spouse that is not payable under an order of a competent tribunal or under a written agreement and not payable on a periodic basis is not a support amount under subsection 56.1(4) of the Act.

XXXXXXXXXX
2014-053026
N. Shea-Farrow

July 21, 2014

Dear XXXXXXXXXX:

Re: Lump-Sum Payment

We are writing in response to your letter dated April 22, 2014, asking whether a lump-sum payment made to a former spouse (the "Recipient") in 2013 by her non-resident former spouse is a support payment that is not taxable. You have told us that the lump-sum payment was not made pursuant to a written agreement or a court order. Previous payments were required to be paid to the Recipient according to a court order and the last payment under the court order was received by the Recipient in 2012. You state that all amounts owing under the court order had been paid in full in 2012. You also state that the payment was not in consideration of any work performed by the Recipient.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax 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 70-6R5, Advance Income Tax Rulings.

For an amount to be included in the recipient's income under paragraph 56(1)(b) of the Income Tax Act (the "Act"), it must first meet the definition of "support amount" in subsection 56.1(4) of the Act.

Subsection 56.1(4) provides that an amount is a support amount if:

it is payable or receivable as an allowance on a periodic basis;

it is paid for the maintenance of the recipient, children of the recipient or both the recipient and children of the recipient;

the recipient has discretion as to the use of the amount; and

where the recipient of the amount is the spouse or common-law partner or former spouse or common-law partner of the payer, the parties are living separate and apart because of a breakdown of their relationship and the amount is receivable under an order of a competent tribunal or under a written agreement; or, where the payer is a legal parent of a child of the recipient, the amount is receivable under an order made by a competent tribunal in accordance with the laws of the province.

A lump-sum payment made by a former spouse that does not represent amounts receivable under a court order or a written agreement is not a support amount under subsection 56.1(4) of the Act. Therefore, the amount is not included in income of the recipient under paragraph 56(1)(b) of the Act. The amount is also not deductible to the payer under paragraph 60(b) of the Act.

However, in situations when a lump-sum payment does represent amounts payable or receivable under a court order or a written agreement, it may qualify as a support amount. The Canada Revenue Agency's view on the circumstances when a lump-sum payment may be a support amount can be found in interpretation bulletin, IT-530R, "Support Payments".

We trust our comments will be of assistance.

Yours truly,

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