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Difference between revisions of "Spousal Support"
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→Avoiding unexpected taxes
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The payment of spousal support will require the recipient to pay additional taxes each year since the payments received must be reported as income. | The payment of spousal support will require the recipient to pay additional taxes each year since the payments received must be reported as income. | ||
A recipient of support may also be subject to other tax consequences that aren't so obvious. One of the more common ways this can happen is if the payor is making the payments indirectly, through a company he or she owns. For example, say that Bob, the owner of Bob's Brewery, writes his spousal support cheques on the company bank <span class="noglossary">account</span> of Bob's Brewery instead of from his personal chequing <span class="noglossary">account</span>. In a case like this, the recipient risks having the payor declare the money to have been paid as a corporate dividend or as salary as if the recipient were a shareholder or employee of the company. | A recipient of support may also be subject to other tax consequences that aren't so obvious. One of the more common ways this can happen is if the payor is making the payments indirectly, through a company he or she owns. For example, say that Bob, the owner of Bob's Brewery, writes his spousal support cheques on the company bank <span class="noglossary">account</span> of Bob's Brewery instead of from his personal chequing <span class="noglossary">account</span>. In a case like this, the recipient risks having the payor declare the money to have been paid as a corporate dividend or as salary as if the recipient were a shareholder or employee of the company which may trigger a higher tax rate. | ||
In the case of support declared as salary, the recipient might also face an unexpected bill from EI or CPP for missed payments, as well as for underpaid tax from the Canada Revenue Agency. In the case of support paid as a dividend, the payments might be taxed at the corporate tax rate, which may be higher than the recipient's personal tax rate. | In the case of support declared as salary, the recipient might also face an unexpected bill from EI or CPP for missed payments, as well as for underpaid tax from the Canada Revenue Agency. In the case of support paid as a dividend, the payments might be taxed at the corporate tax rate, which may be higher than the recipient's personal tax rate. | ||