If you’re separating or divorcing and setting up support payments, one overlooked detail could cost you thousands in tax deductions.
Let’s break down a recent case where the Canada Revenue Agency (CRA) denied a taxpayer a $33,000 deduction—and why wording in your agreement matters more than you think.
Canada Revenue Agency (CRA) taxpayer a $33,000 deduction Quick Summary
| Element | Spousal Support | Child Support |
|---|---|---|
| Deductible to payor? | Yes (if clearly identified) | No |
| Taxable to recipient? | Yes (if clearly identified) | No |
| Needs to be registered? | Yes | No |
| Needs to be specific? | Absolutely | Definitely |
Why Spousal vs. Child Support Matters to the CRA
In Canada, spousal and child support are treated very differently for tax purposes.
Here’s how it works:
- Spousal support payments can be tax deductible to the person paying them, and taxable to the recipient—but only if they’re clearly identified as “spousal support” in a formal agreement or court order.
- Child support payments, on the other hand, aren’t tax deductible and aren’t taxable—no matter what.
So if you’re paying both types of support, the agreement must clearly state what portion is for the spouse. Otherwise, you lose the deduction.
What Happened in This $33,000 CRA Case?
A Canadian taxpayer learned this lesson the hard way.
Let’s walk through what happened.
- He and his former spouse separated in 2010.
- They had a written separation agreement in 2011, stating he’d pay:
- $2,500/month in child support
- $3,500/month in spousal support (until end of 2014)
Even though the agreement said the spousal support would stop in 2014, he continued paying $3,500/month until June 2019. CRA accepted those payments as deductible based on the original agreement.
But Then the Agreement Changed
In July 2019, the couple signed a new court-issued consent order, stating he would now pay:
Here’s the key issue:
The new order didn’t say what part of that $8,000 was for spousal support.
CRA Disallowed $33,000 in Deductions
For January to June 2019, CRA allowed the $3,500 monthly deduction—because it was backed by the original agreement.
But from July to December 2019, they disallowed the remaining $5,500/month he tried to deduct, totaling $33,000, because:
- The new court order didn’t identify any portion as spousal support.
- The previous agreement was no longer in effect.
The taxpayer argued that if $2,500 of the $8,000 was clearly child support (as before), then the remaining $5,500 must logically be spousal support.
But the Tax Court rejected this. The judge said:
Why This Matters for You
If you’re in the process of separation or divorce and want your spousal support payments to be tax deductible, here’s what you need to do:
1. Clearly identify spousal support in your agreement
Use exact amounts and label them “spousal support.”
2. Register the agreement with CRA
Submit Form T1158 with a copy of the agreement.
3. Avoid vague language
Terms like “temporary support” or “to be determined” may cause CRA to reject your deductions.
4. Get legal and tax advice before signing
Mistakes in support agreements are hard (and expensive) to fix later.
Final Thought
This may sound like a technical issue—but it has real financial consequences. In this case, it meant $33,000 in lost deductions.
So, if you’re ever dealing with support payments, take the time to ensure everything is clearly written and CRA-compliant. That extra step today could save you thousands tomorrow.