Tax and spousal support is often overlooked when couples separate. This is important, as it is one of the few areas where a family can benefit from a tax reduction. Who doesn’t want to pay fewer taxes?
Generally speaking, spousal support is tax-deductible for the payor and taxable for the recipient. However, this is not always the case. For support to be tax-deductible, there must be a written agreement and it must clearly define spousal support.
Many couples working things out on their own will lump spousal and child support together. They may write up an agreement that says, “X will pay Y $1,000 per month in support”. This could be spousal support, child support, or a mixture of both. This would not be sufficient to claim a tax deduction through the Canada Revenue Agency (CRA).
What to Include in a Support Agreement
When dealing with both child and spousal support, the best approach is to include two separate clauses.
- A well-drafted agreement will include a paragraph clearly stating the payor will deduct the spousal support from their taxes and the recipient will declare the support on their taxes.
- Your agreement should also have either an end date or a review date.
- Even if you are not dealing with child support, always make it clear that you are addressing spousal support.
How do You Calculate Amount of Support?
Calculating spousal support can be challenging. The appropriate amount of support is usually based upon your line 150 income from your annual taxes.
The Federal Government’s Spousal Support Advisory Guideline (SSAG) program provides the basic guidelines, but these can be complicated and may not fit every circumstance.
A properly prepared separation agreement can save you thousands in taxes. Butterfield Law can draft your agreement for $2000 plus tax.
If you are still unsure about the actual amount of support, a support mediation may be a good option. Victoria Mediation Service offers a Spousal Support mediation package for $400 plus tax per person. This includes completing the SAGG calculations and analyzing your individual factors.
Michael Butterfield
Lawyer & Mediator