Spousal support is money paid from one spouse to the other after a divorce or separation. The federal Income Act considers spousal support taxable income in most circumstances.
If you receive regular periodic spousal support payments, it is taxed as income for tax purposes. If you pay spousal support, it qualifies as a deduction from income. Payments made as a lump sum are not taxable or deductible.
You may also pay the spousal support directly to the former spouse without any intervening third party. To learn more about spousal support issues and considerations, call Musson Morneau LLP.
What Is Spousal Support
Spousal support refers to money one spouse pays the other spouse for financial support during or after a divorce. In past decades, the common term for spousal support was alimony. Sometimes it is also referred to as maintenance.
Most court orders and many written agreements include provisions for spousal support provide for monthly, periodic payments. A spouse may also pay spousal support in a lump sum.
When Does a Court Award Spousal Support?
While neither spouse has an automatic right to spousal support, circumstances may exist where one spouse may have eligible grounds under the Divorce Act or Family Law Act to receive spousal support.
Upon separation, a spouse can claim spousal support. A spouse who receives support still has an obligation to develop the ability to support themselves.
A court may order a spouse to pay spousal support if the payment meets one or more of the purposes of spousal support under the Divorce Act or Family Law Act. These purposes include:
- To compensate a spouse who sacrifices the ability to earn income during the marriage
- To compensate a spouse for the ongoing care of children, separate from any child support obligation
- To help a spouse in financial need resulting from the marriage’s breakdown.
Is Spousal Support Included in Earned Income
Is spousal support taxable in Canada? If you receive spousal support, it is taxed as income and must be claimed on your tax return.
These rules apply only to periodic spousal support payments in specific amounts originating from a court order or written agreement. Also, to claim the tax deduction, you must make all payments for child support for the current and previous years. Any child support payment delinquency will limit your spousal support deduction.
Does Spousal Support Count as Income for CERB
Whether you are the payor or the recipient of spousal support, You must include Canada Emergency Response Benefits (CERB) in your income calculation. You must include most types of income in your total income when calculating spousal support as a payor or recipient.
Is Spousal Support Tax Deductible in Canada
If you pay spousal support, you can deduct these support payments from your income. If a judge awards you spousal support, you can claim a deduction on any legal fees incurred to obtain this order.
Federal tax law does not consider a payment in one lump sum a support payment since you do not pay it periodically, so you cannot deduct lump sum payments. You also cannot claim a tax deduction on any legal fees you spend getting a lump sum.
However, if you make a single lump-sum payment to bring overdue periodic payments current, federal tax law considers this a support payment. As the payor, you can deduct it, and the recipient must include it in their taxable income.
Delinquent Child Support Can Limit the Spousal Support Deduction
When your court order or written agreement obligates you to pay child support and spousal support to the same person, the child support payments have priority.
You can only deduct spousal support if you make your payments for child support in full for the current and previous years. Any unpaid, delinquent child support arrearages attach to the amount of child support payments due in the next year. You must pay these arrearages before you can deduct any payment amounts for spousal support.
Henry files for divorce from Wanda. Wanda requests spousal support and child support. The court awards it to her in the amount of $1,000 ($200 for spousal support and $800 for child support).
Henry paid $1,000 from January to April for a total of $4,000. Henry fails to make any payments for the remainder of the year. When 2021 ends, Henry owes $5,600 in child support for the entire year since the entire amount Henry paid is considered child support. Henry would pay $9,600 in total child support for the year. $9,600 – $4,000 = $5,600.
However, Henry cannot deduct any of the $4,000 on his 2021 tax return because he did not fully pay his child support. Wanda must report the money intended as spousal support payments as income ($200 x 4 = $800) on her 2021 tax return.
This priority does not apply when child support and spousal support are payable under different court orders or written agreements to different persons.
If you are the recipient of spousal support and receive an amount designated as spousal support, you must still claim it as income even if the payor cannot deduct it.
Maximum Spousal Deduction
Federal tax law does not cap the amount of spousal support you may deduct. However, if you pay spousal and child support, your separation agreement or court order should clearly state the monthly amount paid for each type of support.
If a written agreement or court order does not clearly distinguish these amounts, the Canada Revenue Agency (CRA) will treat the entire amount as child support, and you will lose your deduction for spousal support.
It also means that the recipient of spousal support does not have to include it in their yearly income since child support is not taxable. They will avoid paying taxes on payments that you, as the payor, consider spousal support.
Contact an Experienced Family Law Lawyer Today
At Musson Law, our goal is to reinvent how spouses divorce. We focus on a collaborative, solution-oriented approach to dissolving a marriage.
If you have questions about spousal support, talk to a skilled family lawyer at Musson Law. Contact our office today to find out how we can help you during this stressful time.