Spousal Support Tax Guide

Spousal vs Child Support

Key Differences

Why This Matters

• Total after-tax cost different than amount paid
• Recipient keeps less than received
• Affects negotiation of amounts
• May influence structure of agreement

Requirements for Deductibility

Must Meet All Conditions

• Written agreement or court order
• Living separate and apart when paid
• Periodic payments (not lump sum)
• Paid directly to former spouse/partner
• For maintenance of recipient

Periodic vs Lump Sum

• Periodic: Regular ongoing payments—deductible
• Lump sum: One-time payment—generally not deductible
• Arrears paid as lump sum may be deductible

For the Payer

Deducting Support Payments

• Report on Line 22000
• Reduces your net income
• Provides tax refund or reduces tax owing
• Save proof of all payments

Tax Savings Example

Paying $24,000/year in spousal support at 40% marginal rate:

• Deduction: $24,000
• Tax savings: $9,600
• After-tax cost: $14,400

Documentation Required

• Copy of agreement or court order
• Recipient's SIN
• Proof of payments (bank records)
• Date payments began

For the Recipient

Reporting Support Income

• Report on Line 12800
• Added to your total income
• Taxed at your marginal rate
• May need to make installment payments

Tax Owing Example

Receiving $24,000/year at 25% marginal rate:

• Support received: $24,000
• Tax owing: $6,000
• After-tax amount: $18,000

Planning Considerations

• Set aside money for taxes
• Consider installment payments
• May affect government benefits
• Impacts child benefit calculations

Commencement Day Rules

Pre-May 1997 Agreements

• Child support may also be deductible/taxable
• Under old rules
• Unless agreement amended

Post-May 1997

• Child support not deductible/taxable
• Current rules apply
• Only spousal support has tax treatment

Third-Party Payments

What Qualifies

Payments to third parties on behalf of recipient:

• Mortgage payments on recipient's home
• Medical/dental expenses
• Insurance premiums
• Must be specified in agreement

Requirements

• Agreement must specifically allow
• Recipient must consent in writing
• Payments must be periodic
• Not for property division

Interim Support

Before Agreement Finalized

• Court-ordered interim support is deductible
• Voluntary payments before order may not be
• Get written agreement or order quickly
• Can be retroactive in some cases

Retroactive Payments

• May be deductible if ordered
• Claimed in year paid
• Recipient reports when received
• Can create large tax hit for recipient

Varying Support Amounts

Step-Down Provisions

• Decreasing amounts over time allowed
• Must be clearly stated in agreement
• Reasonable variation permitted

When Recipient Gets Job

• May trigger review clause
• Changed amounts still deductible/taxable
• Document any modifications

Common-Law Relationships

Same Rules Apply

• Must be common-law partners (12+ months cohabiting)
• Or parents of a child together
• Written agreement still required
• Same tax treatment as married couples

Proving Relationship

• Duration of cohabitation
• Shared finances
• Social recognition as couple
• Children together

Impact on Benefits

For Recipient

• Increases net income
• May reduce CCB
• May affect GST/HST credit
• Can trigger OAS clawback

For Payer

• Reduces net income
• May increase CCB (if have children)
• May increase GST/HST credit
• Could reduce OAS clawback

Tax Planning Strategies

Gross-Up Approach

• Calculate recipient's after-tax needs
• Gross up for their tax bracket
• Payer still saves at their rate
• Often net benefit to both parties

Non-Taxable Alternatives

• Property division (not taxable)
• Lump sum (not deductible/taxable)
• May suit some situations better
• Consider total financial picture

Reporting on Tax Return

Payer Reports

• Line 22000: Support payments made
• Include recipient's name and SIN
• Keep agreement and payment records

Recipient Reports

• Line 12800: Support payments received
• Include payer's name
• Report actual amounts received

Disputes and Audits

Common Issues

• Amounts don't match between parties
• Missing documentation
• Lump sum vs periodic dispute
• Improper characterization

Protecting Yourself

• Clear written agreement
• Bank records of payments
• Annual reconciliation with ex
• Legal advice on structure