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Child Support Payments – Are they tax deductible?

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19319035_sWe’re often asked about child support payments and thought it would be helpful to get an explanation from a local lawyer.

The government changed the tax treatment on Child Support payments on May 1, 1997. Whitney Smith Chadder is a lawyer specializing in family law issues, here is her explanation:

Subject to a few exceptions, the amount of child support paid is determined by the government Child Support Guidelines.  These are based on the payor’s income (line 150) and the number of children to be supported.

In addition to the base amount of support, parents are typically required to share the cost of section 7 expenses on a pro rata basis based on their respective incomes.  Section 7 expenses refer to expenses that are in excess of what the base amount of support could reasonably cover; they include day care costs and significant extra-curricular activity costs.

The general rule with respect to child support is that it is not tax deductible to the payor, or taxable as income to the recipient.  However, this has not always been the case.  Prior to May 1, 1997, when the new law came into effect, child support was tax deductible to the payor and taxable as income to the recipient.

This has several important implications.  The first is that if parties continue to be bound by a pre May 1, 1997 child support order, then their child support payments are subject to the above tax rules.  Such parties can submit a joint election via Form T1157 to the Canada Revenue Agency requesting that the new rules apply with respect to their child support payments such that there are no tax consequences.  It should be noted, however, that once such an election is submitted, it cannot be cancelled.

The child support tax rules differ from those of spousal support in the following respects:  Spousal support is treated differently for tax purposes based on whether the support is paid in a lump sum or in ongoing, monthly installments.   Where spousal support is paid in monthly installments, it is taxable as income to the recipient and tax deductible to the payor.  Where support is paid in a lump sum, there are no tax consequences; however, in such circumstances the lump sum amount will often be netted down to account for the tax consequences to the payor.

For further information with respect to the income tax rules associated with support payments, please refer to Canada Revenue Agency’s interpretation bulletin IT-530R, dated July 17, 2003, or seek legal advice from a lawyer.

Whitney Smith Chadder is a family law lawyer with Stephen Durbin Professional Corporation in Oakville.  She can be reached at (905) 847-0888 or wml.smith@icloud.com

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