When is Spousal Support Tax Deductible, and when is it taxable?

By John T. Syrtash, Associate, Garfin Zeidenberg LLP, a Toronto family law lawyer for the past 39 years (see www.freemychild.ca).

When a couple separates, the payor of “periodic” spousal support is entitled under the Income Tax Act of Canada to deduct the amounts he pays his spouse from his taxable income. The support recipient must include this spousal support in her income. However, to qualify for the deduction, the spouses must sign a Separation Agreement or obtain a Court Order for periodic support.  “Periodic” means that the spousal support is payable weekly, monthly, or yearly.  If the support is paid in one “lump sum,” then the amount is neither tax-deductible nor taxable.  

As a precaution, a payor should ensure that the Separation Agreement provides that the support recipient must provide a receipt for such payments at the end of each calendar year since some CRA officials refuse to allow the deduction without such a receipt, even though no law or regulation gives CRA officials that authority.  Accordingly, the Separation Agreement or Court order should provide that spousal support terminates or is suspended until receipts are given if no receipt is given.

A different problem often comes up when people pay their spouses support periodically for a period of time long before the spouses sign a Separation Agreement or before they litigate and a “Court” Order for support is granted (which would make the spousal support payments “tax-deductible”).   Once again, until such agreements or Orders exist, the support payments are not deductible.

So, what should a responsible payer do?  Not pay anything to his or her dependent spouse for months until this issue is settled or resolved in Court, just because he or she will not be receiving a tax deduction?

Fortunately, the Income Tax Act provides a partial solution to this problem.  The ITA provides that payments are deductible made in the same year that an Order was made or an agreement was signed in the immediately full preceding full calendar year.   So, the Separation Agreement or Court order can recite periodic spousal support payments made by the payor, going back as far as January 1 in the year preceding the year in which the Separation Agreement is signed Court Order for support is granted.  Accordingly, if you are a “payor,” try to get your dispute resolved within this time frame (to qualify for the deduction retroactively).

But what happens if a payer has not only been paying directly to his or her spouse but also paying other periodic amounts called “third-party payments” for his or her benefit (e.g., the mortgage, the utilities, car leasing/financing, medical expenses, insurance, etc.) and continues to do so for some time post-separation.  Well, Sections s. 56.1(2) and 60.1(2) of the Income Tax Act allows such periodic third- party payments to be deducted if, in a Separation Agreement or Court order, there is a specific reference to these Subsections of the Act and it is accurately worded. Again, such payments are only deductible and taxable, going back to no later than January 1 of the year preceding the year the Order was made or the Separation Agreement was signed.

No child support payments are taxable in the support recipient’s hands or tax-deductible by the support payor.

John Syrtash is an associate and family law lawyer with the Toronto firm of GARFIN ZEIDENBERG LLP.

John T. Syrtash B.A. (Hon.) LL. background:
Invited Speaker on Bill 78, Proposed Changes to Canada’s
Divorce Act, House of Commons Standing Committee on Justice and Human Rights (November 26, 2018)
Editor of the Syrtash Family Law Newsletter, Lexis Nexis
President of the Syrtash Spousal Support Database
Author of Religion and Culture in Canadian Family Law, Butterworths
Author A Calendar of Northern Fables, Amazon

Neither GARFIN ZEIDENBERG LLP nor John Syrtash is liable for any consequences arising from anyone’s reliance on this material, presented as general information and not as a legal opinion.

John T. Syrtash, Associate
Yonge-Norton Centre
5255 Yonge Street, Suite 800
Toronto, Ontario, Canada M2N 6P4
Cell: (416) 886-0359
Fax: (416) 512-9992
email: jsyrtash@gzlegal.com

#spousalsupport #spousalsupportdeductions #CRA #seperationagreement

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