Did you know that you may need to include spousal support payments when filing your annual income tax returns? Consulting with an experienced family lawyer will help determine if your payments are applicable or exempt from filing.
Spousal support, or alimony, is the money paid from one spouse to another for financial support after a separation or divorce. It is typically paid by the spouse with the greater earning capacity. The purpose of spousal support is to:
- Help a spouse gain self-sufficiency, especially if they forewent their income during the marriage
- Provide financial support to a spouse who was negatively affected by the breakdown of the marriage
- Share the cost for the care of children from the marriage
Criteria for spousal support payments to be filed
Spousal support payments are filed as deductibles by the paying spouse and as income for the receiving spouse.
Before filing your spousal support payments or receipts, your court order or written agreement must be registered with the Canada Revenue Agency (CRA) using the T1158 form. This allows the CRA to differentiate the purpose and breakdown of your support payments. You should also notify the CRA if there are any amendments to the court order.
Spousal support payments must meet specific criteria to be filed. The payments must be:
- A specific amount according to the court order or written agreement and paid to the recipient spouse
- Paid to the recipient by a former spouse or common-law partner who has been separated and living apart due to the dissolution of the relationship
- Paid by the legal parent of the child of the recipient, in support of the recipient or child and can be used at the recipient’s discretion
- Payable periodically as outlined by the terms of the court order or written agreement
- Made to the recipient or an agent enforcing the collection of the support payments
Exceptions
There are instances when spousal support payments will not be classified as such and should not be filed on income tax returns.
A non-existent written agreement or court order
Spousal support payments are excluded from your tax returns if a court order or written agreement does not exist. If, however, support payments were made before the agreement and are recognized as previously paid under that agreement, those payments must be filed. For example, if payments were made in 2019, 2020, and 2021 and an agreement was created in 2021 stipulating all prior payments be considered paid, they would be included on your tax return. Payments would be filed for the previous tax year (2021) and the current year (2022). Payments made in 2019 would be excluded, as they fall outside the tax year.
Specific purpose expense
Spousal support payments are also excluded from tax returns if, under the court order or written agreement, the payable amount is for a specific expense and can only be used for that purpose. These expenses include:
- Property rental, taxes, or insurance premiums
- Medical or educational expenses
- Cost to maintain the recipient’s home
- Up to 20% of the principal amount of debt for buying or improving the recipient’s home
If the court order states that the monies payable for a specific expense should be included in the recipient’s income, the payer will file it as a deductible, and the recipient will file it as income.
Lump-sum payments
If spousal support is paid as a lump sum instead of periodically, it is not considered a support payment and will not need to be filed. There are, however, rules that may alter this criterion. For example, if the lump sum amount paid for spousal support is for retroactive payments missed under the court order.
Family lawyer in Surrey
Many factors affect the filing of your spousal support payments or your eligibility for tax credits. The experienced family lawyers at Nirwan Law Corporation can help you avoid unnecessary expenses or legal ramifications resulting from incorrectly filing your annual income returns. Call 604-372-0253 today or fill out our contact form to schedule a free consultation.
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