Support Payments – When are they Taxable or Deductible?

Child Support Payments are never taxable for the recipient nor deductible for the payer, as long as the originating court order or agreement is later than May 1st 1997. Court orders or agreements prior to May 1st 1997 are subject to the old rules (taxable and deductible).

Spousal Support Payments which are payable in the “ordinary” fashion (payable weekly or monthly, by one spouse to the other spouse, without restrictions on the use of the money), are taxable for the recipient and deductible for the payer.

This often creates a tax advantage, because the support payer is usually in a higher tax bracket than the recipient, so the tax saving is greater for the payer than the cost for the recipient. In some divorces, this can create a point for bargaining, to encourage the payer to pay more because of the tax saving, which creates a net benefit for the parties.

Be careful, however, where the recipient is in so low a tax bracket, that receipt of some spousal support creates a “clawback” of social benefits (single parent head of household deduction, child tax credit, etc.) in addition to the tax bill. I have seen cases where the total “tax cost plus clawback” can be 60% or more for the recipient, while the payer is only saving 45-50%!

For more information on the rules about support, read this Canada Revenue Agency Interpretation Bulletin:

Support Payments (PDF)
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