Tax Implications of Support Payments

This script discusses the income tax implications of spousal support (sometimes called maintenance or alimony) and child support. For information about getting or paying spousal support, refer to script 123; for information about getting or paying child support, refer to script 117.

The references to “spouse” apply to everyone who is an unmarried spouse or married spouse, sometimes called a common-law spouse, and includes ex-spouses. The references to “parent” apply to everyone who is a parent, including married and unmarried spouses, to stepparents, and to people who were never in a married or unmarried relationship but have a child together.

The Income Tax Act has complex rules for support payments

It’s a good idea to have legal advice and even to talk to an accountant about how the tax rules may apply before you come to any agreement about support with your spouse.

The Income Tax Act refers to spousal support as “support amount” and “maintenance”, and to child support as “child support amount”. The terms “spousal support” and “child support” will be used in this script.

Different tax rules apply to spousal support and child support

Spousal support is generally deductible for the payor and taxable for the recipient, while child support is generally not deductible or taxable.

Spousal support is usually deductible and taxable

The general rule is this: spousal support is taxable income in the hands of the spouse receiving it and is a tax deduction for the spouse paying it. In other words, the spouse receiving support must report the support payments as income, in the same way that income from a job is taxable, and pay income tax on the support he or she receives. The spouse who pays the support can claim it as a deduction from his or her taxable income in the same way that RRSP contributions are deductible.

Spousal support payments must be paid on a periodic basis if they are to be taxable for the recipient and deductible for the payor, and the requirement to pay must be set out in a written agreement or a court order.

Spousal support paid as a lump sum is not taxable or deductible. For example if everyone agreed that the payor would pay all of his or her payments right away in a single lump sum payment. Spousal support that is paid indirectly, such as by paying the mortgage or by providing services in kind, may not be taxable or deductible. Deciding how spousal support will be paid has serious tax consequences for both spouses. Make sure you consult with a lawyer or tax advisor.

To be tax deductible and taxable, the spousal support must actually be paid

Also, you must have a record of your payments. If you’re paying support, you should pay by cheque, electronic money transfer, bank draft or money order, and keep copies of the receipts and cancelled cheques. Don’t have someone else make the spousal support payments on your behalf, and don’t pay it out of a joint account. To assist with record keeping for tax purposes, write “spousal support” on the front of cheques as well as the month and year the payment is for.

Problems can happen if spousal support is offset by another payment

Say, for example, that the payor must pay $600 a month as spousal support, but the recipient of spousal support must pay $100 a month to the payor for child support. While it would be easier to just pay $500, it can be difficult to prove to the Canada Revenue Agency that $600 in spousal support was really paid, and the CRA may only allow a $500 deduction. It’s best to just pay the whole $600 and actually get the $100 back.

There must be a written agreement or a court order

For spousal support payments to be taxable and deductible, there has to be a written agreement or a court order for the payment of spousal support. If a couple simply separate and agree between themselves that spousal support will be paid, the support may be paid but it will be paid with no deduction for the payor and no tax payable by the recipient. As a result, a spouse who agrees to pay support will sometimes go to court and ask a judge to make a support order to get the benefit of the tax deduction.

In the case of a written separation agreement, the agreement must state the date of separation, as well as the terms of any support payments to be made, such as the date the support payments will begin, when the payments are due and the exact amount payable. The details and wording of separation agreements are very important.

There are ways to allow for the deduction of certain payments made before spouses get their court order or separation agreement, but this can be difficult and you should get advice from a lawyer first.

Support payments can only be made to the spouse, not to someone else

Generally speaking, support payments are only taxable and deductible if they are made to a spouse or former spouse, and they’re not usually deductible if they’re paid to someone else. A spouse might, for example, agree to pay a smaller amount of spousal support but also pay the mortgage on the family home. This kind of payment arrangement can be very tricky, and again, you should get the advice of a lawyer or accountant to be sure that the payments will be treated by the Canada Revenue Agency in the way that you intend.

People sometimes disagree about whether a payment was actually made

This happens frequently when payments are made in cash. One spouse might claim to have made a payment or the other spouse might deny receiving it. As a result, it’s a good idea to make any support payments in such a way that there is proof of payment, for example, paying by cheque, electronic money transfer, bank draft or money order. If you must pay in cash, get a receipt from your spouse clearly stating the amount, the date and the purpose of the payment.

Child support payments are usually not deductible or taxable

Child support is not taxable or deductible unless it is being paid as a result of a written agreement or court order made before May 1, 1997. All agreements or court orders made on or after May 1, 1997 automatically follow the new rules. After that date, you can’t deduct child support if you pay it, and you do not have to pay tax on child support if you receive it.

Parents with old orders and agreements can agree to change the deductibility of child support

Parents can agree between themselves that child support payments made under an agreement or order made before May 1, 1997 will follow the new tax rules by filing a form with the CRA. Once they do this, however, they cannot go back to the old rules.

The written agreement or court order must say what kind of support is being paid

Because spousal support is generally tax deductible and child support generally isn’t, an agreement or order must say what amount is being paid for spousal support and what is paid for child support. If the agreement or order sets out a single sum to be paid for both spousal support and child support, without stating how much is for what, the CRA will treat the whole amount as child support and the payor will get no deduction, even if a part of the amount paid is supposed to be for spousal support.

Some legal fees and expenses are tax deductible

The cost of obtaining or enforcing a spousal support or child support order, including an order for the payment of arrears, is deductible for the person receiving support. The cost of defending a claim for support or for the payment of arrears of support is not deductible.

To claim the deduction for your lawyer’s fees, you must show how much of your lawyer’s bill went to the support claim. While it’s possible to ask your lawyer for a letter estimating how much of their time went to the support claim, it’s usually easiest for the lawyer to keep track of their time from the beginning. If you want to claim this deduction, make sure you tell your lawyer right from the outset.

Additional information about the deduction of lawyer’s fees is available from the Canada Revenue Agency at www.cra-arc.gc.ca. Search for “Line 232 - Legal fees”.

[updated November 2014]

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A payment made by one spouse to the other spouse to help with the recipient's day-to-day living expenses or to compensate the recipient for the financial choices the spouses made during the relationship.

In family law, an antiquated term referring to child support and spousal support. See "child support" and "spousal support."

Money paid by one parent or guardian to another parent or guardian as a contribution toward the cost of a child's living and other expenses.

Under the Divorce Act, either of two people who are married to one another, whether of the same or opposite genders. Under the Family Law Act, spouse includes married spouses, unmarried parties who have lived together in a marriage-like relationship for at least two years, and, for all purposes of the act other than the division of property or debt, unmarried parties who have lived together for less than two years and have had a child together. See "marriage" and "marriage-like relationship."

Someone who is a spouse by the operation of a statute. Under the Family Law Act, unmarried spouses are people who have lived together in a marriage-like relationship for at least two years, or, for all purposes of the act other than the division of property or debt, who have lived together for less than two years but have had a child together. See "marriage-like relationship," "marriage" and "married spouse."

A person who is validly married to another person as a result of a ceremony presided over by someone with the authority to conduct marriages. See "marriage" and "unmarried spouse."

(1) A popular misconception under which people believe they are married to each other simply because they have lived together, or (2) a popular misnomer describing the legal relationship between long-term cohabitants. Common-law marriages have never been lawful in British Columbia. See "common-law marriage," "married spouse," and "unmarried spouse."

In family law, the natural or adoptive father or mother of a child; may also include stepparents, depending on the circumstances and the applicable legislation; may include the donors of eggs or sperm and surrogate mothers, depending on the circumstances and the terms of any assisted reproduction agreement. See "adoptive parent," "assisted reproduction," "natural parent" and "stepparent."

(1) The assertion of a legal right to an order or to a thing; (2) the remedy or relief sought by a party to a court proceeding.

A mandatory direction of the court that is binding and enforceable upon the parties to a court proceeding. An "interim order" is a temporary order made following the hearing of an interim application. A "final order" is a permanent order, made following the trial of the court proceeding or the parties' settlement, following which the only recourse open to a dissatisfied party is to appeal. Failing to abide by the terms of an order may constitute contempt of court. See "appeal," "consent order," "contempt of court," "decision" and "declaration."

The conditional transfer of the title to real property by an owner to another person in return for money given by that person as a loan, while retaining possession of the property. The party to whom title is given, the "mortgagee," usually a bank, is allowed to register the title of the property in their name if the person taking the loan, the "mortgagor," fails to make the required payments. See "encumbrance" and "real property."

A person licensed to practice law in a particular jurisdiction by that jurisdiction's law society. See "barrister and solicitor."

In property law, the act of an owner of a thing giving ownership of that thing to another person, usually in exchange for money or other property in the case of a sale, or in exchange for other rights in the case of a family law agreement. See "family law agreements," "ownership" and "sale."

(1) A preliminary version of a document, (2) an order prepared following judgment and submitted to the court for its approval, or (3) to prepare, or draw, a legal document.

A bank account owned by more than one person, normally with an equal entitlement to deposit or withdraw, with or without the consent of the other account holders.

A person appointed by the federal or provincial government to manage and decide court proceedings in an impartial manner, independent of influence by the parties, the government, or agents of the government. The decisions of a judge are binding upon the parties to the proceeding, subject to appeal.

A term under the Divorce Act referring to an order for child support or spousal support. See "child support" and "spousal support."

A contract intended to resolve all or some of the legal issues arising from the breakdown of a relationship and intended to guide the parties in their dealings with one another into the future. A typical separation agreement is signed following a settlement reached through negotiation and deals with issues including guardianship, parenting arrangements, contact, support, the division of property, and the division of debt. See "family law agreements."

In family law, the decision of one or both parties to terminate a married or unmarried relationship; the act of one person leaving the family home to live somewhere else with the intention of terminating the relationship. There is no such thing as a "legal separation." In general, one separates by simply moving out, however, it is possible to be separated but still live under the same roof. See "divorce, grounds of."

In family law, the dwelling occupied by a family as their primary residence. See "family property" and "real property."

(1) Information which establishes or tends to establish the truth of a fact, or (2) the conclusion of a logical argument. See "evidence" and "premises."

Child support or spousal support that is owing because of an order or agreement but is unpaid.