Is Child Support Taxable?

Fortunately for some, and unfortunately for others, child support payable pursuant to a written separation agreement or judgment of the court, after May 01 1997, is no longer taxable for the recipient, nor deductible for the payer.

For child support agreements and judgments rendered prior to May 01 1997, both recipient and payer may file a declaration to make the payments tax-free for both of them.

The fact that child support is not taxable is important for many lower income earners, because this avoids social benefit “clawback” that can have a particularly terrible effect! Taxable child support not only bumped these people (generally women), into a higher income tax bracket, but they also progressively lost tax benefits such as family allowance that are “clawed back” progressively as income moves up. This means that often the payers (generally men) might save, say, 50% on their income tax by deducting child support, but the recipients were suffering a “cost” of, say, 60% because of increased income tax added to lost social benefits!

Unfortunately, for many “traditional model” marriages, the non-taxability of child support takes away what could be a wonderful opportunity to effect “income-splitting” between a higher income spouse and the stay-at-home spouse.

The tax departments acknowledged that overall, changing child support to make it non-taxable represented a tremendous windfall in tax revenues for both governments, a fact that many women’s groups should have considered far more carefully before throwing their weight behind Suzanne Thibodeau’s fight to “de-tax” child support (a Quebec case that ended up in the Supreme Court), instead of behind Elizabeth Symes’ fight to establish the deductibility of child care expenses (an Ontario case that also ended up in the Supreme Court).