Spousal Support:Tax Implications
Spousal support is to support a spouse or common-law partner as stated in a court order or written agreement.
Under the Divorce Act, a married spouse or a divorced spouse may apply for spousal support. Alternatively, the following parties’ may apply for spousal support under the Family Law Act:
- Either of two persons who are married to each other or have together entered into a marriage that is voidable or void in good faith;
- Either of two persons who are not married and have cohabitated continuously for a period of not less than three years; and
- Either of two persons who are not married but who are in a relationship of some permanence if they are the natural or adoptive parents of a child.
The tax rules related to spousal support and child support are different and must be considered.
Generally, spousal support payments received are taxable to the recipient and deductible to the payor if they have the following features:
- The parties are living separate and apart at the time the payment is made;
- The payments are considered an allowance paid on a periodic basis;
- The payments are made for the maintenance of the recipient who has discretion as to how the support is used;
- The payments were made directly to the recipient spouse or are considered third-party payments;
- The agreement or order must refer to the amount as spousal support or spousal support amount;
- Payments are made pursuant to an order or written agreement;
- All payments for child support are fully paid for the current and previous years.
Conversely, a lump sum payment to satisfy any and all future claims for support is not deductible to the payor or taxable to the recipient. The lump sum will generally not be considered a support payment because it is not paid on a periodic basis. However, if periodic payments required by a court order or written agreement are overdue and one payment is made to bring them up to date, the lump-sum payment is considered a support payment. Additionally, a lump sum payment is considered a support amount if it is paid under a court order clearly stating that retroactive support has to be paid for a period of time before the court order.
Notably, and be mindful, that any support amount that is not stated in the order or agreement as being only for the support of the recipient is considered to be child support. Child support amounts are not deductible by the payor and do not have to be included in the recipient’s income.