Script 133 gives information only, not legal advice. If you have a legal problem or need legal advice, you should speak to a lawyer. For the name of a lawyer to consult, call Lawyer Referral at 604.687.3221 in the lower mainland or 1.800.663.1919 elsewhere in British Columbia.

This script discusses the income tax implications of spousal support (sometimes called maintenance) and child support. The reference to “spouse” applies whether you are separated or divorced, so it includes a husband or wife, as well as an ex-husband or ex-wife. It also applies to former common-law spouses and former partners from same-sex married or common-law relationships.

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 apply, before you come to any agreement about support with your spouse.

The Income Tax Act refers to “alimony” and to “maintenance.” There is a technical difference, but they mean the same thing for the purposes of this script. The term “spousal support” will be used here to refer to both alimony and spousal maintenance. For child support payments, the term “child support” will be used.

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 generally deductible
The general rule is this:  spousal support is taxable as 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 taxable income, in the same way that income from a job is taxable – and pay income tax on the support they receive. The spouse who pays the support can claim it as a deduction on their income tax return.

The exception to the general rule is if spousal support is paid in a lump sum rather than by way of periodic payments. For example, if a spouse takes the equity in the family home instead of periodic spousal support, no tax is payable on the value of the equity. Making a decision about whether to divide family assets unequally or to pay periodic spousal support is a decision that has serious tax consequences. 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. So if you’re paying support, you should pay by cheque and keep the cancelled cheques. Don’t have someone else pay it on your behalf, and don’t pay it out of a joint account. To assist with record keeping for tax purposes, write on the front of the cheque the word “support” or “maintenance” and the month and year it is for.

Disagreements sometimes arise about whether a payment was actually made
This happens frequently when payments are made in cash. One spouse claims to have made a payment but the other person denies 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, by cheque 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.

Problems may also occur if the support is offset by another payment or debt
Say, for example, that a husband must pay his wife $600 a month as support, and she owes him $100. While it would be easier for the husband to simply pay $500, it can be difficult to prove to the Canada Revenue Agency that he really paid $600 in support and got $100 back. It’s best to just pay the whole $600 and actually get the $100 back.

There must also be a written agreement or court order
To be taxable and deductible, there has to be a written separation agreement or court order concerning the divorce or separation. If a couple simply separate and agree between themselves that the husband will pay the wife some money each month, she’ll receive the money tax-free, and he won’t get a deduction. As a result, a husband who agrees to pay support will sometimes go to court and ask a judge to order him to pay support – even though he’s already agreed – so he can get the benefit of the tax deduction.

In the case of a written separation agreement, the agreement must describe the date of separation, as well as the terms of any support payments to be made. The details and wording 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 these are rather technical, and you should have the advice of a lawyer who is familiar with them.

Spousal support payments have to be periodic
To be taxable and deductible, the court order or agreement must say that the support payments have to be made on a regular basis – usually a series of payments made once or twice a month, at about the same time each month. A lump sum amount, even one that’s paid out in installments, cannot be deducted by the spouse paying it. This can be a very important negotiating point in a settlement. Both spouses should be very clear about how the payments will be characterized for tax purposes.

Support payments can only be made to the spouse, not someone else
Generally speaking, support payments are only taxable and deductible if they’re made to your spouse or former spouse – they’re generally not deductible if they’re made to someone else. A husband might, for example, agree to pay a certain amount of support and also to pay the mortgage on the family home where the wife and children are living. This kind of payment 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.

Child support payments may or may not be deductible
The two general rules are:

• Child support that is paid under a separation agreement or court order dated before May 1, 1997 is tax deductible by the person paying it.
• Child support paid under a separation agreement or court order dated on or after May 1, 1997 is not deductible from income tax.

All agreements or court orders made after May 1, 1997 automatically follow the new rules. You can’t deduct child support if you pay it, nor do you have to consider it as income for tax purposes if you receive it.

Parents can agree to change the deductibility of child support
Spouses can agree between themselves that child support under an old agreement or court order will follow the new tax rules that apply to agreements and orders made on or after May 1, 1997. They can sign and file a form with the Canada Revenue Agency to make the new rules apply to their agreement or order. But once they do this, they cannot go back to the old rules.

The written agreement or court order must say who the support is for
Because spousal support is generally tax deductible and child support generally isn’t, the agreement or order must say what amount is paid for spousal support and what amount is paid for child support. If the agreement or order sets out a single sum to be paid, without stating how much is for what, the Canada Revenue Agency will treat the whole amount as child support. The spouse making the payments 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 is deductible. However, the cost of defending a support claim is not deductible.

To claim the deduction for your costs to get a support order, 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. So if you want to claim this deduction, make sure you tell your lawyer right from the outset.

[updated January 2009]

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