It is important to know the difference in tax treatment whether you are making or are the recipient of support payments.
What Are Support Payments?
Support payments are financial support paid to by an individual to a former spouse or common-law partner based on a court order or written agreement to help with the cost of living. It is important to distinguish between child support and spousal support, because the tax treatment of each one is different.
There are two types of support payments:
- Child support
- Spousal support
While child support is generally considered non-taxable, spousal support is fully taxable in the hands of the recipient. To claim support payments, there must be a court order or written agreement that specifies the amount and occurrence of the support payments.
The payment has to need five conditions to be considered a support payment:
- The support payment has to be based on a court order or written agreement.
- The ex-spouse or common-law partner must be living at a different home address when the breakdown in the relationship happened or has to be the parent’s child.
- The support payment is made to help with the cost of living for the former spouse, the child or both. The former spouse can use the money as he sees fit.
- The support payments must be made regularly (most often monthly) and spelled out in the court order or written agreement.
- The support payments have to be made from the individual to the former spouse or common-law partner.
The Tax Treatment of Child Support
For court orders or written agreements that were made after April 1997, all child support payments are considered non-taxable.
The former spouse or common-law partner does not need to include child support amounts received when filing a tax return. The individual who is paying the child support cannot claim a tax deduction for child support payments made.
Prior to May 1997, child support was considered taxable to the former spouse or common-law partner, and the individual making the payments could claim a tax deduction. In court orders that do not distinguish between child and spousal support, the whole amount is considered non-taxable.
The Tax Treatment of Spousal Support
The tax treatment of spousal support is different than child support.
- Child support is considered non-taxable
- Spousal support (commonly referred to as alimony) is considered fully taxable in the hands of the former spouse or common-law partner.
The former spouse or common-law partner must claim spousal support as taxable income if the court order or written agreements clearly spells out the amount to be paid on a recurring basis (often monthly) and there are no outstanding child support payments. In this case, the individual making the support payments can claim a tax deduction on the tax return for support payments made.