November 2019 Newsletter

Under the Income Tax Act (the “Act”), interest on borrowed money is deductible, generally if it is used for income-earning purposes rather than personal or other purposes. More specifically, interest on borrowed money is deductible if:

  • There is a legal obligation to pay the interest;
  • The borrowed money is used for the purpose of earning income from a business or property (or the interest is on an amount payable for property acquired for the purpose of earning income from the property or from a business); and
  • Only to the extent that the interest is “reasonable”.

In most cases, current rules provide that child support payments made to an ex-spouse or common-law partner are not deductible for the payer and are not included in the income of the recipient. An exception applies if the applicable court order or agreement was made before May 1997, was not amended or replaced by another order or agreement after April 1997, and the parties did not elect to have the current rules apply. In these rare cases (where child support is still being paid for a child who is at least 22, given that 22 years have passed since 1997), the payer may deduct the child support payment and the recipient will include them in income.

On the other hand, spousal support payments are deductible for the payer and included in the recipient’s income, as long as certain conditions are met.

General conditions for deduction of spousal support

If you sell or transfer a property to a non‑arm’s length person for an amount other than its fair market value, there are onerous income tax rules that may apply. The rules are discussed below, and there is an exception for transfers to spouses and common-law partners. But first, what constitutes a non‑arm’s length person?

In terms of individuals, a non-arm’s length person includes any person that is "related" to you under the Act. This will include people related to you by blood, marriage or adoption. The list includes your children, grandchildren, great-grandchildren and so on, your parents, grandparents etc., your siblings, your spouse or common-law partner, and your in-laws. Interestingly, it does not include cousins, aunts, uncles, nieces and nephews, but it does include a brother-in-law and a sister-in-law (including through a common-law partnership).

Employer-provided parking pass included in employee’s income

Generally, if an employer provides free parking for an employee at or near the place of employment, the value of the parking is considered a personal benefit and therefore included as a taxable benefit in computing the employee’s income. (An exception may apply if the parking is “scramble parking”, under which the parking lot has fewer parking spaces than the number of employees provided with the parking.)