Recently we discussed the two ways in which spousal support is calculated in Canada: using the “with child support” formula or the “without child support” formula. Another matter to consider with regard to child support and alimony is taxes.
Prior to May 1997, child support and spousal support were tax deductible by the payer and taxable to the recipient, but since then the rules have changed.
Now, if child support is paid under a written divorce agreement or court order that was made after April 1997, the recipient is not required to count the support as income for tax purposes, and paid child support is not tax deductible by the payer.
However, the Canada Revenue Agency does count alimony as taxable income to the recipient, and alimony is tax deductible by the payer.
In support arrangements involving child support and spousal support, the child support must be given the higher priority. In other words, for tax purposes, when a court order or divorce agreement specifies alimony in conjunction with child support payments, any support paid is first considered to be child support. That is, up until the specified amount of child support is paid in full. Payments over and above that amount are considered to be alimony and thus tax deductible by the payer.
Child support must be paid in full in the current year and previous years in order for any paid spousal support to be tax deductible. Payable child support that is not paid in a given year carries over as payable in the next year.
For more on how entitlement to spousal support is determined in Canada, please see our previous post, “What factors do judges consider when making spousal support decisions?”