Is alimony tax-deductible in Canada?

Some people believe that alimony is tax-deductible for the payer and that, conversely, the recipient must declare it as income.

This statement is partially true, as alimony payable to a former spouse is tax deductible. On the other hand, alimony paid for the benefit of minor or adult children has been fully tax-exempt since 1997.[1]

Child support

Since May 1, 1997, parents receiving child support payments no longer have to include this amount as income on their annual tax returns. At present, the amount received as alimony is no longer subject to the taxpayer’s total income tax rate.

Before May 1, 1997, the paying parent could deduct the amount on his or her tax returns, thereby reducing the tax payable. This method of accounting for income gave rise to a number of difficulties for the courts, which had to take into account the tax payable by the parent receiving this pension for the benefit of his or her children.

It’s a kind of “defiscalisation” of child support, designed to maximize the sums available for the child’s needs.

Since then, child support payments are no longer taxable for the parent who receives them, nor deductible for the parent who pays them. The amount paid will be considered a net amount.

Entry into force

This tax exemption applies only to agreements concluded or orders issued after May 1, 1997. However, any subsequent modification of the initial order made before that date will result in the alimony being tax-free.

It is therefore possible to amend the original order to benefit from the new tax-free payment regime, if a party believes that the effects of tax exemption will be more beneficial than previously anticipated.

Alimony for ex-spouses

This tax measure does not apply to spousal support, which continues to be taxable for the recipient and deductible from income for the payer.

Since this tax exemption applies only to child support payments, agreements and orders must now distinguish between the amount payable for the former spouse and the amount payable for the children, when support is payable for both categories of beneficiary. If no distinction is made, the tax authorities will treat the pension as child support, thereby depriving the payer of spousal support of a deduction to which he or she would normally be entitled.

[1] The award of spousal support is assessed according to specific criteria, and the advice of a lawyer is invaluable for any information on this subject. Child support is a matter of public policy and is payable as soon as a minor child is involved. It is possible to replace the payment of child support with other measures, but cases are rare and it is advisable to consult a lawyer on this point.