How to Deal with Spousal Support & Tax Consequences in Ontario

How to Deal with Spousal Support & Tax Consequences in Ontario

Couples who’ve had an amicable divorce or separation may agree to sort things between themselves without pursuing any legal options. This is often a big mistake as there are tax benefits and tax consequences for child and spousal support payments in Ontario, which they may not be aware of.

Is income received as spousal support taxable?

Did you know that after receiving spousal support, you are required by law to report it as income when filing your taxes each year? These payments must be defined and agreed as spousal support before you can declare them as taxable income. After separation, the couple must sign a family law written agreement that adheres to strict rules and doesn’t contain any illegalities that could render it null and void. With the help of a lawyer, you can draft an agreement that is valid before the court of law.

Do all payments to cater to your ex’s expenses count as spousal support?

Certainly not. You must have a written agreement with your spouse or a judge order for paying your ex’s expenses for it to count towards spousal support in Ontario. If you don’t have an agreement in writing, any money you pay to your ex cannot be deducted as spousal support payments from your income taxes. Additionally, your ex doesn’t have to report these expenses as additional income. This means that if you are paying your ex’s expenses, you may not benefit from saved taxes if these amounts are not defined as spousal support in writing.

Can I deduct alimony payments from my income to save on tax?

Yes, when paying alimony, you can deduct the amount from your income to gain some tax savings. However, you need to clearly state that those payments, whether in the form of cash, groceries, rent, or any other expenses paid on behalf of your ex, are spousal support.

Can the payments made in previous years be categorized as spousal support payments?

Once you and your ex sign a written agreement or a court order that states payments made in previous years are spousal support, these can be deducted from your income by the CRA. You need to write to the CRA and request them to recalculate your taxes. This may result in some cash refunds.

Can I deduct child support payments from my income?

On the contrary, child support cannot be deducted from your income. Child support payments are tax-free. The recipient of child support cannot claim the payments as income in his or her taxes.

Can I deduct the legal fees I have paid to pursue spousal support in Ontario from my income?

Yes, if you paid legal fees to receive spousal support in Ontario, you can deduct this amount from your income when filing your annual tax returns.

However, if you pay a lawyer to fight a spousal support case or have the amount of support reduced, you cannot deduct the legal fees from your income.

Can I deduct legal fees from my income if I have paid a lawyer to try and get child support?

Yes. If a lawyer has assisted you in pursuing child support, you can deduct the legal fees from your income when filing your tax returns.

However, if you have paid legal fees to try and eliminate or reduce your child support payments, you cannot deduct this amount from your income when filing your taxes.

Do I have to pay spousal support if my spouse refuses to work?

In Ontario this will depend on the reason why your spouse has refused to work. If there is a legitimate reason such as disability or old age, you may still be required to pay alimony from your income. However, if your ex-spouse is unemployed without any good reason, you can pay alimony by asking the judge to impute an income of a certain amount to your ex-spouse.