How to Deal with Spousal Support and Tax Consequences in BC?

I have a client who does not want to fight or go to court. So since he separated from his wife, he has been quietly paying for all of her expenses including rent, food, etc for several years. It all sounds fantastic when separated couples get along and sort things out between themselves. But sometimes they don’t realize they are making massive mistakes when they do not inform themselves of tax benefits or consequences when it comes to child and spousal support in BC.

So I am inspired to write all about spousal support and tax in BC, and hope that by reading this article, you avoid mistakes that could cost you fortunes.

Here is a quick video with tips as well:

Is Spousal Support Taxable Income in British Columbia?

Yes, recipient spouses must report spousal support as income when they file their taxes each year. However, the payments must be defined or agreed to be spousal support in order for the CRA to calculate them as taxable income.

Family law written agreements have to follow strict rules to be enforceable and not subject to court challenge. Contact our award-winning family lawyers for help relating to family law agreements.

If I Pay for My Ex’s Expenses, Does that Count Towards Spousal Support in British Columbia?

Not necessarily. Unless your ex agrees in writing, or a judge orders so, paying for your spouse’s expenses after separation does not count as spousal support. That means you cannot deduct spousal support payments from your income taxes. And your ex does not have to report such payments as income.

What this means is that you would be letting go of (sometimes) tens of thousands of dollars in saved taxes if you do not define paying for your ex’s expenses as paying him or her spousal support.

Can I Deduct Alimony Payments from Income for Tax Purposes?

Yes, the recipient would need to report the alimony payments in his or her income, and the payor can deduct the same amount from his/her/income. This often results in tax savings.

However, again, you need to make it clear that any payments, in whatever form – whether cash, rent, groceries, etc, that you pay on behalf of your ex are spousal support.

My Ex and I didn’t Categorize my Payments as Spousal Support in the Previous Years. Is There Anyway I Can Fix This?

Yes, as long as you and your ex get into a written agreement or a court order that says the previous years’ payments are spousal support, you can ask the CRA to recalculate your taxes. This may result in a substantial refund of back taxes.

Can I Deduct Child Support Payments from My Income in BC?

No, child support is different from spousal support. Child support payments are tax-free. This means you cannot deduct the payments from your income. The recipient of child support also does not claim the payments as income in his or her taxes.

Can I Deduct the Legal Fees to Get Spousal Support from My Income?

Yes, only in situations where you are receiving spousal support, you can deduct the legal fees you have paid to pursue spousal support in British Columbia.

Can I Deduct the Legal Fees Paid to Fight Having to Pay Spousal Support?

No, if you are disagreeing with having to pay spousal support or want to have it reduced, you do not get to deduct the legal fees you spend fighting spousal support.

Don’t ask me why!

Can I Deduct the Legal Fees I Pay in Trying to Get Child Support From My Income?

Yes, you can deduct all legal fees you pay in pursuing child support.

Can I Deduct the Legal Fees I Pay to Fight Having to Pay Child Support?

No, if you are trying to fight, eliminate or reduce your child support obligations, you do not get to deduct the legal fees paid from your income.

Do I have to Pay Alimony if My Spouse Refuses to Work in British Columbia?

It depends. If your spouse refuses to work because of a legitimate problem such as disability or old age, then yes you will have to pay spousal support based on your income. However, if your ex-spouse refuses to work without good reason, then you can have income imputed to him/her and pay spousal support based on the imputation of income.

Let me explain by example:

1. Example 1: You earn $100,000 per annum and are 60 years old. Your ex-spouse does not work because he is 78 years old. Because your ex is at retirement age, a judge would not force him to work as it wouldn’t be reasonable. So you would have to pay spousal support based on your income of $100,000, and his income of 0 (assuming he has no other sources of income).
2. Example 2: You earn $100,000 per year and are 40 years old. Your ex-spouse has the ability to earn $40,000 per year but has decided to quit her job and not work so you pay spousal support. In this situation, you can ask a judge to impute an income of $40,000 to her, meaning the judge would assume she earns $40,000. In this situation, you would not owe your ex any spousal support.

For help with all your spousal and child support issues, book a consultation with our experienced family law lawyers. Call us at 604-974-9529 or get in touch.