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Difference between revisions of "Tax Implications of Support Payments"
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Tax Implications of Support Payments (view source)
Revision as of 01:30, 30 April 2021
, 01:30, 30 April 2021no edit summary
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{{REVIEWEDPLS | reviewer = [http:// | {{REVIEWEDPLS | reviewer = [http://bhmlawyers.ca/team-2/samantha-de-wit/ Samantha de Wit], Brown Henderson Melbye|date= April 2020}} {{Dial-A-Law TOC|expanded = divorce}} | ||
Different income tax rules apply to spousal support and child support. Spousal support payments are handled one way, and child support payments another. Learn how the tax rules affect you. | Different income tax rules apply to spousal support and child support. Spousal support payments are handled one way, and child support payments another. Learn how the tax rules affect you. | ||
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===Spousal support is usually taxable and deductible=== | ===Spousal support is usually taxable and deductible=== | ||
Spousal support payments are like any other kind of income. The spouse who receives them (the | 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 | 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. | ||
===When spousal support payments are taxable and deductible=== | ===When spousal support payments are taxable and deductible=== | ||
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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. | 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==== | ====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. | 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. | ||
{| class="wikitable" | {| class="wikitable" | ||
|align="left"|'''Tip''' | |align="left"|'''Tip''' | ||
Parents with an agreement or order made ''before | 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. | ||
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For the support '''recipient''', the cost of '''getting or enforcing''' support is deductible from their income. That is, [https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-1-individuals/folio-3-family-unit-issues/income-tax-folio-s1-f3-c3-support-payments.html#toc9 legal fees for these actions ''can'' be deducted]. (Though only the fees relating to the support amount.) | For the support '''recipient''', the cost of '''getting or enforcing''' support is deductible from their income. That is, [https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-1-individuals/folio-3-family-unit-issues/income-tax-folio-s1-f3-c3-support-payments.html#toc9 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. | The cost of defending a claim for support or payment of support is ''not'' deductible. | ||
{| class="wikitable" | {| class="wikitable" | ||