Separation and divorce are a challenging process and can be convoluted when it involves costs for child and spousal support. Understanding the tax treatment of how funds are distributed may have an impact on your decisions.
Qualified Support Payments
A support payment is an amount that is payable or receivable on a periodic basis to support the recipient or their child.
Your payment is considered a support payment if all the five following conditions are met:
- The payment is a specific amount made to the recipient according to a court order or written agreement.
- The payer is living separate and apart from the recipient at the time the payment is made because of a breakdown in the relationship.
- The payment is made to support the recipient, the child of the recipient, or both. The recipient can use the payment at their discretion.
- The payments are payable on a periodic basis. The timing of the payments must be set out in the court order or written agreement.
- The payments are made to the recipient or to an agent enforcing the collection of the amount.
Child support is to support a child or a child and a spouse or common law partner, as stated in a court order or a written agreement. Most child support payments that are received according to a written agreement or court order are not taxable to the recipient.
Child support payments are also not deductible to the payer and are not income to the recipient.
Spousal support is to support a spouse or common law partner as stated in a court order or written agreement. The support payments are made only to support the recipient.
Fees relating to support payments received by your former spouse are taxable. If you are paying spousal support payments to your former spouse, this will be deducible on your personal return. Note to receive the deduction, a court order or agreement must clearly state the amount to be paid for the spouse or common-law partner. In addition, all payments for child support must be fully paid for the current and previous years.
The court order or agreement must be registered with the CRA.
Retroactive Support Payments
Retroactive support payments are included in the tax return in the year received. However, this may be taxed as if they were received in previous years if all of the following apply:
- The amount that applies to previous years is $3,000 or more (not including interest).
- You were resident in Canada.
- It is to your advantage for tax purposes
Accounting and Legal fees
You cannot deduct legal fees that have been incurred to get a separation or divorce or to establish custody or visitation rights for a child.
However, the recipient of support payments may deduct legal and accounting fees incurred for the following:
- to collect overdue support payments owing
- to establish the amount of support payments
- to establish the amount of support payments from the legal parent of your child (who is not your current or former spouse or common-law partner) where the support is payable under the terms of a court order
- to try to get an increase in support payments
You may also be able to deduct certain fees incurred to make child support payments non-taxable.
The tax filing process also provides an occasion to strategize for tax planning opportunities. Shajani LLP Chartered Professional Accountants and Advisors have a team of Calgary Accountants, Edmonton Accountants and Red Deer Accountants ready to assist you in your personal tax filings and tax planning strategy. Consider using us to file your tax returns.
This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2022 Shajani LLP.
Shajani LLP is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning service.