In simple terms, a spousal support payment is financial support paid from an individual to a former spouse after separation or divorce. This includes couples that were married or were in a common-law partnership.
If you pay spousal support, you may be allowed to deduct the amounts you pay from your total income. Similarly, if you receive spousal support, you may have to include the amounts you received in your income for the year.
However, for the payment to be considered a “spousal support” for tax purposes, specific criteria need to be met. These include:
It is payable or receivable as an allowance or on a periodic basis;
The support payments are being made under a court order or written agreement pursuant to a relationship break-down;
The payments are made directly to the former spouse. Some indirect payments may qualify. Check with an expert; and
The spouse must have discretion regarding how to use the payment.
Lump Sum vs. Periodic Support
Spousal support can be paid either periodically or in one lump sum, with the former being more common.
If the spousal support payment is made periodically, the individual who pays the support may be able to deduct the payments from his or her taxable income. Likewise, a former spouse or partner who receives periodic payments may need to include those amounts as income in their tax return.
If the spousal support payment was made in one lump sum, the individual who pays the support may not be able to deduct the payments from his or her taxable income. Correspondingly, the individual receiving the lump sum payment may not be obligated to include it in their income.
However, if the lump sum payment was made in pursuit of specific reasons or scenarios, the individual making the payment may be able to deduct it from their income. For example, if the purpose of the lump sum payment is to provide security for future payments of spousal support, meant to be distributed periodically, then that amount may be deductible for the payor. Similarly, if the lump sum payment was made under court order to cover previous periodic payments owing, it may be deductible for the payor and considered taxable income for the receiver. If the lump-sum payment was also made pursuant to amounts that were due to be payable after the date of the order or written agreement, and had fallen into arrears, those amounts may still be deductible for the payor and taxable for the receiver.
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions, you should consult a lawyer.
Tyra Yah is an articling student at R&A Tax Law. Tyra just completed her final year at the Queen’s University Faculty of Law. During law school, Tyra worked as a Case Analyst at the Conflict Analytics Lab, analyzing employee vs. independent contractor cases litigated at the Tax Court of Canada. She was also the President of the Queen’s Law Tax Society, volunteer at the Queen’s Legal Aid Clinic, Project Lead for a Pro Bono Students Canada research project, and External Director of the Queen’s Asian Law Students Association, which won the Professional Excellence Award for their contribution to the legal community.
Jason Rosen
Jason Rosen is a founding Partner at R&A Tax Law. Jason provides effective and aggressive representation by taking a proactive, client centered approach for his domestic and international clients alike. Throughout his time in the field, Jason has gained a comprehensive understanding of tax procedures and the dispute resolution process.
How Spousal Support Payments Affect Taxes
What is a Spousal Support Payment?
In simple terms, a spousal support payment is financial support paid from an individual to a former spouse after separation or divorce. This includes couples that were married or were in a common-law partnership.
If you pay spousal support, you may be allowed to deduct the amounts you pay from your total income. Similarly, if you receive spousal support, you may have to include the amounts you received in your income for the year.
However, for the payment to be considered a “spousal support” for tax purposes, specific criteria need to be met. These include:
Lump Sum vs. Periodic Support
Spousal support can be paid either periodically or in one lump sum, with the former being more common.
If the spousal support payment is made periodically, the individual who pays the support may be able to deduct the payments from his or her taxable income. Likewise, a former spouse or partner who receives periodic payments may need to include those amounts as income in their tax return.
If the spousal support payment was made in one lump sum, the individual who pays the support may not be able to deduct the payments from his or her taxable income. Correspondingly, the individual receiving the lump sum payment may not be obligated to include it in their income.
However, if the lump sum payment was made in pursuit of specific reasons or scenarios, the individual making the payment may be able to deduct it from their income. For example, if the purpose of the lump sum payment is to provide security for future payments of spousal support, meant to be distributed periodically, then that amount may be deductible for the payor. Similarly, if the lump sum payment was made under court order to cover previous periodic payments owing, it may be deductible for the payor and considered taxable income for the receiver. If the lump-sum payment was also made pursuant to amounts that were due to be payable after the date of the order or written agreement, and had fallen into arrears, those amounts may still be deductible for the payor and taxable for the receiver.
If you are negotiating a separation or divorce agreement, and you want to make sure your payments meet the CRA requirements for deductibility, we can help! Contact us to schedule an appointment with our team of experts!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions, you should consult a lawyer.
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