What you should know
After a couple separates, one spouse may be obligated to pay the other spousal support to help with living expenses. If they have children, one parent may be obligated to pay the other child support to help cover the costs of raising them. (Or, both parents may be obligated to pay the other in a shared parenting arrangement).
Different tax rules apply to each of these types of support payments.
Spousal support is considered taxable income for the spouse who receives it. It counts as a tax deduction for the spouse paying it.
Child support, however, is generally not taxable or deductible.
We explain these general rules and what these terms mean below.
Spousal support payments are like any other kind of income. The spouse who receives them (the recipient) must report the support payments as taxable income to the Canada Revenue Agency. And they must pay income tax on the payments.
The spouse who pays the support (the payor) can claim it as a deduction. (It’s like deducting contributions to registered retirement plans or child care expenses). These deductions reduce the amount of income tax the payor has to pay.
For spousal support payments to be taxable and deductible, all child support payments must be fully paid in the current and previous years. Also, the spousal support payments must be:
- Paid because of a written agreement or a court order. The written agreement or court order must clearly state the amount to be paid to the recipient as spousal support.
- Paid on a periodic basis, such as once a month or once every two weeks. (Spousal support paid in a one-off lump sum is generally not taxable or deductible.)
- Actually paid by the payor.
Spousal support that’s paid indirectly, such as by paying the mortgage, may not be taxable or deductible. If you are considering such an arrangement, you should get legal advice.
Spousal support decisions have serious tax consequences for both spouses. You should get advice from a family lawyer or tax advisor before signing a support agreement.
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 support agreement or court order. A couple can agree between themselves that spousal support will be paid. But the payor won’t be able to claim a deduction on their taxable income unless they have a written agreement or court order confirming the periodic spousal support.
If the parties have a written separation agreement, it must state the separation date. It should also set out the terms of the spousal support payments to be made, including:
- the date the support payments begin,
- when the payments are due, and,
- the amount payable.
A spousal support order or written agreement must be registered with the Canada Revenue Agency. (You don’t need to register an order or agreement if it’s for child support only.) To register your spousal support order or agreement, you need to fill out the registration of family support payments form. Then submit it to the Canada Revenue Agency.
Spousal support payments are tax deductible and child support payments aren’t. Because of this, an agreement or order must be clear about what kind of support is being paid and how much. If the agreement says one sum is to be paid for both spousal support and child support, the Canada Revenue Agency will treat the whole amount as child support. In that circumstance, the spouse paying support will not get a tax deduction.
The spousal support must be paid by a spouse to their spouse
Generally speaking, spousal support payments are only taxable and deductible if they’re made by a spouse to a spouse or former spouse.
The payor shouldn’t have someone else make the support payments on their behalf, or pay them out of a joint account.
Support payments aren’t usually deductible if they’re paid to someone else. A spouse might, for example, pay a smaller amount of spousal support. But, they may make up the difference by covering the mortgage on the family home. Before agreeing to this kind of payment arrangement, it’s important to get the advice of a lawyer or accountant. You want to be sure that Canada Revenue Agency will treat the support payments in the way that works best for your financial situation.
Proving that the spousal support payments were actually paid
For spousal support payments to be taxable and deductible, the payments must be actually paid.
Problems can come up when support is paid in cash. One spouse might say they made a payment while the other spouse denies receiving it.
It’s a good idea to make support payments by cheque, electronic money transfer, bank draft, or money order. These are ways that prove you paid. If a payment is made in cash, it’s important to get a signed receipt from the spouse. It should clearly state the amount, the date, and the purpose of the payment.
Keep a record of every spousal support payment. Keep copies of cancelled cheques or receipts of electronic money transfers. Make a note on each cheque or receipt what time period the payment covered.
For child support orders or agreements made after 1997, there are no tax implications for child support payments. That is, the recipient can’t claim them and the payor can’t deduct them.
Parents with a child support order or agreement made before 1997
Up until 1997, child-support payments were taxable and deductible. So if child support is being paid under a written agreement or court order made before 1997, those older rules apply. That is, in those cases, child support is taxable income for the recipient and is deductible from the payor’s taxable income.
Parents with an agreement or order made before 1997 can, legally, “grandfather in” the old rules which allowed tax credits and deductions for child support payments. But the couple can also agree not to. That is, they can agree that they will follow the current tax rules (so child support would not be taxable and deductible). If they do decide to go that route, they must file a form with the Canada Revenue Agency. Once they do this, they can’t go back to the old rules.
For the support recipient, the cost of getting or enforcing support is deductible from their income. That is, legal fees for these actions can be deducted. (Though only the fees relating to the support amount.)
The cost of defending a claim for support or payment of support is not deductible.
Ask your lawyer for a letter estimating how much of their time on your file went towards the spousal support or child support claim. That will help you know how much you can deduct on your taxes.