If you get separated or divorced, and you’re in the process of negotiating your support payments, be sure to pay very close attention to how your agreement is worded, as the tax consequences differ dramatically between whether you are paying or receiving spousal support or child support.

As a reminder, the Income Tax Act explicitly distinguishes between spousal support and child support, with different tax rules for each. Spousal support includes any amounts paid on a periodic basis, under a separation agreement or court order, for the support of a former spouse or common-law partner. Child support, on the other hand, includes any support payments that are not specifically identified in that order or agreement as being only for the former spouse’s use. In both cases, the former spouses must be living apart after the breakdown of their marriage or relationship.

If the court order or separation agreement only provides support for a spouse, then the payments are fully taxable to the recipient and tax deductible to the payor. To ensure tax deductibility, the order or agreement must be registered with the

Canada Revenue Agency. To do so, the former spouses should complete CRA Form T1158 Registration of Family Support Payments and include a copy of the order or agreement.

On the other hand, if the order or agreement is solely for the support of children, the payments are neither taxable to the recipient nor tax deductible to the payor, and there is no need to register the agreement with the CRA.

If, however, your agreement or order contains a requirement to pay both spousal as well as child support, it should clearly indicate what amounts relate to spousal support otherwise those payments will not be tax deductible. This was the issue before Tax Court in a recent decision involving a taxpayer whose support payments paid to his ex in 2019 were denied by the CRA.

The taxpayer and his former spouse met in 2003, had a daughter in 2004, married in 2006, and separated in late 2010. In the spring of 2011, the taxpayer and his ex–wife entered into a written separation agreement which had the taxpayer paying $2,500 per month in child support and $3,500 per month in spousal support each month from December 2010 through December 2014.

Although the separation agreement provided that the taxpayer’s obligation to pay $3,500 per month of spousal support was supposed to terminate at the end of 2014, he continued to pay $3,500 each month until June 2019. This taxpayer had already gone to court to challenge the support he paid in 2018, which

I previously wrote about when that case was decided in January 2023. In that case, the tax court found that, notwithstanding the expiration of the taxpayer’s obligation to pay spousal support at the end of 2014, the $3,500 he paid monthly in 2018 should still be considered spousal support paid under the agreement.

The taxpayer’s present case involved the 2019 tax year during which a consent order was issued by the Family Court Branch of the

Ontario Superior Court of Justice in July 2019. This consent order effectively replaced the separation agreement and stated that “commencing on July 1, 2019, and on the first day of each month thereafter until further order of this Court … (the taxpayer) shall pay to (his ex-spouse) temporary support in the amount of $8,000 per month. The above is being agreed on a without prejudice basis and subject to verification of the (taxpayer’s) income and redefined as child support or spousal support once (the taxpayer’s) income (is) verified retroactively to July 1, 2019.”

The Tax Court judge, upon “a close reading of the consent order,” noted that, unlike the terms of the separation agreement, the Ontario court judge refrained from identifying any portion of the $8,000 per month support amount as spousal support. Furthermore, that judge deferred the determination of child support and spousal support to a later date, which apparently never occurred.

For 2019, the CRA allowed the deduction of $3,500 per month that the taxpayer paid for each of the first six months of 2019 as spousal support because it was identified as such under the terms of the separation agreement, which continued in effect until the end of June 2019. The CRA, however, denied the deduction of $5,500 per month paid for the last six months of 2019 under the terms of the consent order (for a total of $33,000).

The taxpayer’s logic was that as of July 1, 2019, he paid $8,000 per month, and since under the previous separation agreement he was paying $2,500 per month of non-deducible child support, then the balance, or $5,500 per month, must be the portion of tax deductible spousal support.

The judge rejected the taxpayer’s argument “in its entirety,” saying that the taxpayer can’t rely at all on the previous separation agreement as it was replaced by the terms of the July 2019 consent order. In addition, the judge noted that the consent order “was obviously based on the consent of the parties,” which meant that both parties, being the taxpayer and his ex, agreed to the non-identification of spousal support in the order.

The judge therefore concluded that the “inescapable — and determinative — fact is that none of the $8,000 support amount payable by (the taxpayer) every month under the consent order was identified in the (order) as being solely for the support of his former spouse.” As a result, the judge found that none of the $33,000 claimed as spousal support payments for the last six months of 2019 was tax deductible by the taxpayer.

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This is an important reminder for anyone going through a separation or divorce to get expert legal and tax advice to ensure that the separation agreement or court order clearly identifies the amount that is spousal support if the intention is to make that support tax deductible to the payor spouse.

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com

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