Alimony and maintenance

Rules regarding alimony and maintenance payments changed significantly as of May 1, 1997. The main change was to treat payments for child support differently from payments for spousal support.

Agreements or court orders after April 1997

For new or varied child support agreements made after April 30, 1997, the recipient won’t pay tax on the payments and the payer won’t receive a tax deduction for them. If the agreement or court order doesn’t identify an amount as being solely for the support of a spouse or common-law partner, it will be treated as child support. Similarly, any third-party payments that are not clearly identified as being solely for the benefit of the spouse or common-law partner will be treated as child support.

Periodic payments for spousal support continue to be taxable to the recipient and deductible by the payer, provided certain conditions are met (see discussion below on agreements or court orders prior to May 1, 1997).

Tax tip: If you’re party to an agreement or court order entered into before May 1, 1997, and you want the changed rules to apply, you must jointly elect by filing Form T1157. In some cases, you may also be required to file a copy of the agreement itself.

Registration of agreements

In some cases, you may be required to file Form T1158 with the CRA, along with a copy of the agreement or court order. Generally, these requirements extend to situations in which payments will continue to be deductible—for example, if an agreement is entered into after May 1, 1997, and it contains a requirement either for spousal payments only or for separate amounts for spousal and child support. Agreements entered into before May 1, 1997 may also have to be filed if they provide for spousal or spousal and child support payments and the agreement becomes subject to the new rules. Your tax adviser will be able to provide you with details on these filing requirements.

Child support payments from a United States resident are not taxable under the Canada-US tax treaty.

Agreements or court orders prior to May 1997

For alimony and maintenance payments made pursuant to a written separation agreement or court order in place before May 1997, the old rules apply—i.e., the amounts are deductible for tax purposes if they meet certain criteria. Also, if the person making the payments is allowed to deduct them, the person receiving the payments must include the amounts in income.

In general, to be deductible, the payments must be periodic, for the maintenance of your spouse and/or children and made pursuant to a written separation agreement or court order. Payments made in the same year (as well as those in the preceding year), before the agreement was signed, may also be deductible, provided the agreement or court order recognizes these payments.

Third party payments

The court order or written agreement may also provide for payments to be made to a third party rather than directly to your spouse, former spouse or common-law partner (the “recipient”), such as medical bills, tuition fees and mortgage payments. Such payments may qualify  as support payments, however these amounts are generally treated as child support amounts unless clearly identified in the court order or written agreement as being solely for the support of the recipient. The rules for whether third party payments may qualify for a deduction to the payer and a corresponding income inclusion to the recipient are complex and depend on the facts, including the provisions in the tax order or written agreement. You should discuss the facts of your situation with your tax adviser.