Why read this?
Your client is:
- Your client is paying spousal or child support, and
- is divorced or separated.
What to do
1. Report spousal or child support payments
› Spousal support payments are deductible for the payer, and income for the recipient.
› Due to a change in the law, only child support payments made under agreements written before April 1997 are deductible by the payer. Those payments are considered taxable income for the recipient.
› Register court orders or written agreements for spousal or child support with CRA. Complete a separate Form T1158 Registration of Family Support Payments for each agreement, and attach it to the return.
a If your client pays child or spousal support:
›› enter total payments on Line 230 of the return; and
›› enter the deductible payments (spousal support) on Line 220 of the return.
Ensure agreements and court orders distinguish between child and spousal amounts, says Mariani. If both are contained in a single amount, CRA will assume it’s all child support, which isn’t deductible.
If your client paid her ex-partner a retroactive lump-sum support payment, complete Form T1198 Statement of Qualifying Retroactive Lump-Sum Payment and have her ex-partner sign and submit it to CRA.
b If your client receives child or spousal support:
›› enter total payments received on Line 156 of the return; and
›› enter the taxable portion of the payments on Line 128 of the return.
If your client has received a retroactive lump-sum support payment of more than $3,000, the payer should give her a completed Form T1198 Statement of Qualifying Retroactive Lump-Sum Payment. Your client must include this form with her income tax and benefit return to ask CRA to recalculate her taxes by distributing the income across prior years. If CRA’s assessment results in less tax, it will list the result on your client’s next Notice of Assessment or Reassessment.
2. Claim support payment legal fees
› On Line 221 of the return, your client can deduct legal fees paid to:
›› collect late support payments;
›› establish support payments as a beneficiary;
›› establish support payments from her child’s legal parent, if the parent is not her current or former spouse or partner; or
›› get an increase in support payments.
› Recipients can deduct fees. Ineligible legal fees for payees include those incurred to:
›› get a separation or divorce;
›› establish or negotiate support payments; or
›› establish custody or visitation.
Separation, divorce and shared custody
- If parents share custody, and the child lives with each equally, CRA may consider both as primary caregivers. Each parent will get half the benefits payment they’d be entitled to had they been taking care of the child full time.
- If your clients are getting separated or divorced, notify CRA using Form RC65 Marital Status Change. CRA sends benefits to the primary caregiver. It will re-calculate her payments when it’s notified of the change in marital status. The former secondary caregiver must apply for benefits online or using the Canada Child Benefits Application.
- To designate a father as the primary caregiver, attach a signed note to a benefits application from the female parent stating the father is primarily responsible for the children.
Sources: Dora Mariani, CA, CPA, CFP, TEP principal, Segall LLP; Sam Lackman, CRA; KPMG, Tax Planning for You and Your Family 2015.
Jessica Bruno is a Toronto-based financial writer.
Originally published in Advisor's Edge Report