Generally, spousal support is taxable to you. The payor may also tax deduct it. However, lump-sum ‘catch-up’ (i.e., “retroactive”) spousal amounts are different. If you are awarded, or agree on, a lump-sum spousal support payment for the past, it is typically adjusted to reflect that: a) you likely will not be required to pay tax on it; and b) the payor is not likely able to deduct it. The Family Court will take this ‘net’ approach to lump-sum “retroactive” spousal awards, rather than require the parties to try to sort out the tax consequences with the Canada Revenue Agency directly (which usually does not cause a fair outcome for either party, or both). The Family Court will reduce the amount that is payable by multiplying it by the payor’s marginal tax rate, your marginal tax rate, or an average between the two rates, typically. The amount you receive will be less than the monthly amount payable to you in the past, to reflect the tax adjustment. While this may seem unfair, it is currently the law in Ontario. A good case on this (as of June, 2015) is: Hume v. Tomlinson, 2015 ONSC 843. Parties are free to negotiate whatever they wish, but typically the payor will ask for a reduction to reflect the tax for past, catch-up amounts paid. What you need to know:
- Generally, spousal support is taxable to you, tax deductible to the payor
- Lump-sum ‘catch-up’ awards are treated differently, generally
- Lump-sum ‘catch-up’ awards will be adjusted for tax (i.e., you will receive less), typically
This BLAWG is general and informational only. It is not legal advice, or intended to be. Advice for your circumstances may require specific/more information.
More information or assistance: jason@wardlegal www.wardlegal.ca