27 June 2012 External T.I. 2011-0430161E5 - Tax Implications on Spousal Support

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: Whether a Canadian resident (the Recipient) has to include spousal support amounts received in his or her income if the non-resident spouse (the Payer) is not claiming a deduction for the amounts paid.

Position: Yes.

Reasons: Paragraph 56(1)(b) applies to the spousal support amounts received.

XXXXXXXXXX

					2011-043016
					Ananthy Mahendran

June 27, 2012

Dear XXXXXXXXXX:

Re: Tax Implications on Spousal Support

We are writing in response to your correspondence dated December 5, 2011, wherein you requested our views on the tax implications of spousal support payments received by a Canadian resident (the “Recipient”) from his or her non-resident spouse (the “Payer”).

You would like to know whether the Recipient has to include the spousal support amounts in income if the Payer is not allowed a deduction under Israel’s tax laws for spousal support payments made to the Recipient.

Our Comments:

Under paragraph 56(1)(b) of the Income Tax Act (the “Act”), the Recipient is generally required to include any support amount (other than certain child support amounts) received in a taxation year in his or her income for that taxation year. The expression “support amount” is defined in subsection 56.1(4) of the Act. A “support amount” includes an amount received as an allowance on a periodic basis for the maintenance of the recipient, if the recipient has discretion as to the use of the amount, where the recipient is the former spouse of the payer, the recipient and payer are living separate and apart because of the breakdown of their marriage, and the amount is received under a written agreement. The income inclusion pursuant to paragraph 56(1)(b) is not dependent on whether the payer of support amount receives a tax deduction in Canada or in the payer’s country of residence, although there is generally symmetry when both the payer and the recipient are residents of Canada. Consequently, any spousal support amount received by the Recipient must be included in his or her income under paragraph 56(1)(b) of the Act, regardless of the tax treatment accorded to its payment in the hands of the Payer in Israel.

In cases where a non-resident individual is making spousal support payments to a Canadian resident, the Canada Revenue Agency (CRA) relies on an income tax treaty to determine whether the support payments received by the Canadian resident are tax-free in Canada. Pursuant to Article 18(3)(c) of the Canada-Israel Income Tax Convention, alimony and other similar payments arising in a Contracting State (Israel) and paid to a resident of the other Contracting State (Canada) who is subject to tax therein in respect thereof, shall be taxable only in that other State (Canada). Accordingly, spousal support payments received by a resident of Canada from a resident of Israel are taxable in Canada.

The CRA’s general comments regarding support payments to and from non-residents is contained in its Guide P102 entitled “Support Payments”. Specifically, under the heading of “Payments to or from a non-resident”, the Guide provides that if an individual is a resident of Canada who receives support payments from a resident of another country, the individual has to include the payments in income if the conditions provided under subsection 56.1(4) of the Act are met.

In our view, a Canadian resident receiving taxable support payments from a non-resident is required to report the payments as income under paragraph 56(1)(b) of the Act.

We trust that our comments will be of assistance to you.

Yours truly,

Sharmini Ratnasingham
Assistant Director
For Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch