Can Tax Be Deducted From Spousal Support in Ontario?
Divorce can be messy, especially when it comes to negotiations for spousal support. Oftentimes, after a settlement is made it’s advisable for both parties to make the best of their situation and take stock of what happens next. The practical aspects of spousal support as it relates to your taxes should never be overlooked.
What Is Spousal Support?
Spousal support, or alimony, is a court-ordered sum of money paid by one spouse to another on a periodic basis following the dissolution of a marriage or common-law union. Spousal support is not an automatic right after the dissolution of a marriage – one partner must demonstrate a financial need for support, or an entitlement to compensation due to financial losses as a consequence of the marriage.
In Ontario, only the support payments that have been paid under court order or a written agreement will be taken into account for tax purposes – any amounts exceeding what was specified in the agreement (such as pocket money or gifts) cannot. In order to be eligible for tax consideration, payments must be paid on a regular and periodic basis, directly to the former spouse, with no intervening third party. Payments that are paid as a lump sum (such as a one-time transfer in the event of a “clean break”) is not taxable or deductible.
If You’re Paying Spousal Support
If you pay spousal support on a monthly basis, you are eligible for income tax deduction for the total amount of spousal support paid each year. One time lump-sum payments are not eligible for tax deduction; likewise, you cannot claim tax deductions on any legal fees spent on defending a claim for spousal support in court.
If You’re Receiving Spousal Support
Recipients of monthly spousal support must pay tax on the total support received each year. The support payments received are considered taxable income, and must be declared as such on your tax returns. If spousal support was awarded as part of a court ruling, you may be eligible to claim a tax break on legal fees spent on the case.
Support payments made in a lump sum are not considered taxable income; likewise, you are not entitled to claim a tax deduction on any legal fees spent on getting a lump-sum payment.
How Much Spousal Support Am I Owed?
The Spousal Support Advisory Guidelines serves as a starting point for calculating the amount and duration of support. The final support payment is determined by considering the financial need of the payee, the duration of marriage and cohabitation, as well as the presence of children within the relationship (and, by extension, the amount of payable child support that is owed).
Consult a Professional
The specific legal framework of spousal and child support can be complicated – it is always advisable to seek professional legal counsel to help guide you through the process. Galbraith Family Law lawyers are trained in Collaborative Practice, and we have been named the top firm by the Barrie Examiner multiple times. Our legal insights have also been featured in the Globe and Mail, as well as Lawyers Weekly.
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