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Is Spousal Support Taxable in Canada?

Is Spousal Support Taxable in Canada? Know the Facts!

Spousal maintenance, alimony, or partner support – what name you call them, it is certainly one of the most concerning things among the divorced couples or the spouses who are on the verge of separating.

This ultimately gives rise to the question, “Is spousal support taxable in Canada?”

In this article, you will get all your answers to the question revolving in your mind regarding spousal support payments. Well, in short, Yes!

Spousal support is fully taxable in the recipient’s hands as per the Canadian rules and regulations. And it is also deductible from the payee earnings.

Before jumping directly into the details, let’s know about the alimony payments at first for a better understanding of the later sections:

What is Meant by Spousal Support?

Spousal support are basically the mandatory financial support that is paid by an individual to their former spouse or common-law partner. These payments are also known as spousal maintenance and is a type of the support payment.

They are either outlined by a court order or a written contract. It is mainly done to help them with their living expenses.

Is Spousal Support Taxable in Canada?

Unlike the child support payments, the spousal support is taxable for the receipt (the spouse receiving the support) while it is deductible for the payer (paying the support).

Here, the payer is in a higher tax bracket compared to the recipient. As a result, this builds grounds for a tax advantage. So, the ratio of the tax saving for the payer gets increased and is more in amount compared to the recipient’s cost.

In some of the divorce cases, this makes a solid ground for doing some bargaining to inspire the payer to pay more. Well, it is a pretty good deal, but only if the recipient’s tax bracket isn’t that low. Otherwise, if they are extremely low in the bracket, then it will create a “clawback” of a social advantage here, including the tax bills.

Such as, the tax cost plus the clawback can be 60% to 70% or more for the recipient, while the payer can only save up to 30%-40%.

So before taking the final call, understand the situation properly and take legal help if needed to do the math properly. As once the decision is made, it will be quite tough to amend it again.

How are Spousal Support Determined?

Many of us have the misconception that the spousal support may not be mandatory. But in reality, they are compulsory, and refusing to pay them without any valid ground is enough to file charges against you. as if you don’t pay on time or denies to pay them, then ultimately, it will fall under the criminal charges.

In other words, paying spousal support or alimony payments is a legal obligation of a spouse towards their former spouse. These payments are applicable and have to be given following a separation or a divorce.

This issue normally occurs in cases where one spouse has a higher earning than the other one. When a married couple wants to get legally divorced, at that time, both the parties can mutually agree and thus decide the alimony on their own.

However, if they cannot mutually agree, then, in that case, they can resort to the court to finally arrive at an agreement.

Below is a list of the common things that a court normally checks and considers while passing the order:

  • The duration of the marriage, counting from the wedding date to the divorce date
  • Current income of the spouses
  • Age and health of both the spouses
  • Earning capability of the each the spouse
  • The financial condition of both of them
  • The financial and non-financial contributions that both of them used to stay while staying in the relationship
  • Any kind of economic scope lost due to the wedding

Note: There may be a slight variation in the above-mentioned things as each state tends to have different rules and regulations.

Are There Any Requirements for Spousal Support?

Definitely. In fact, all the spousal support must meet these requirements criteria at all costs. Hence, it is more than necessary that you fulfill them on time.

Have a look at the below listings:

  • The spouses must file the separate tax returns
  • This kind of payment must be made either by cash, check, or via money order
  • They are usually made under a divorce or separation instrument to a spouse or a former spouse
  • Must be specified as the alimony payments
  • The spouses must not live under the same roof, along with having any sort of physical relationship
  • The payer will not have any sort of liability to make spousal support payments upon the recipient’s spouse’s death.

Is Spousal Support Tax Deductible?

Spousal support payments are like any other form of income. However, things tend to work in a different way here. Such as the spouse receiving the payment, known as the recipient, have to report it as the taxable income to the CRA (Canada Revenue Agency). Based on this, they must pay the income tax as well.

On the other hand, the other spouse who pays the support referred to as the payor, can claim it as a deduction. This work as deducting the contributions to the registered plans or child care expenditures. Meaning, this subtraction decreases the amount of income tax the payor has to pay.

The Bottom Line

If both the spouses have the same kind of annual income or are newly-wedded couples, then, in that case, spousal support are not that of an issue.

However, if the judge or both the parties fix an expiration state at the alimony decree time, then, in that case, the payer will no longer be held liable to provide any kind of financial aid to their spouse from that instant.

That’s all for “Is spousal support taxable in Canada.” If you still have confusion on your mind, then it’s better that you consult with an experienced lawyer to solve the issue as soon as possible before things get complicated and out of hand.

Frequently Asked Question

Have a look at the below most asked queries if you have any doubts in your mind to clarify:

How can I avoid paying taxes on spousal support?

If you are currently living with your spouse or former spouse, then, in that case, the spousal support payments does not fall under the tax-deductible criteria. In fact, it will qualify as tax-deductible only when you don't have any sort of physical or mental connection with them. One piece of advice, don't file for a joint tax return ever. As if both of you file it together, then you will not be able to deduct the spousal support payments.

How long does spousal support last?

Well, it basically depends on the length of the marriage. For instance, if the marriage lasts for more than 10 years, then it will be entitled to grant a lifelong spousal support. Besides, another crucial thing that is considered while determining the spousal support payments is the spouse's age.

How are spousal support payments calculated?

The spousal support payments are usually calculated following the rules and regulations of that state. However, in general, the court checks how much each of the parties will need to have a standard of living, how much earning one can possibly make in a month, and how much time the other party (recipient) will need the support payments, etc.

Is a lump sum payment in a divorce settlement considered taxable?

No, they are not considered taxable for the recipient. In fact, if the lump sum payment is a spousal support payment, then also, in that case, it will not be considered deductible for the payer.

Does alimony change upon the income?

Of course not! In fact, no matter how much there is an increase in your earnings, it will not in any way mean that you have to pay more alimony. After all, this amount is set by the court to help the other spouse with their living costs. So even after the separation, they can live comfortably without being a part of the household anymore.

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