Offices in Ottawa and Perth
(613) 722-1500

CONTACT US (613) 722-1500

Share on twitter
Share on facebook
Share on linkedin

Tax Adjustments for Retroactive Spousal Support Calculations

Share on twitter
Share on facebook
Share on linkedin
Share on email

Tax Adjustments for Retroactive Spousal Support Calculations

Posted April 9, 2018

In Canada, periodic spousal support amounts paid pursuant to a Court order or written agreement are tax deductible by the payor and are taxable income to the recipient.   The rules are set out in the Income Tax Act.   This allows for tax efficiency in separated families, since the recipient’s marginal tax rate is virtually always lower than the payor’s.

The amount the recipient receives after subtracting the tax payable on the spousal support is called the ‘after-tax benefit.’   The amount that the payor pays after the subtracting the tax deduction on the spousal support is called the ‘after-tax cost’ of support.

Occasionally, due to over or underpayment of spousal support, parties or a court need to determine the best way to adjust spousal support for previous years, since the tax deductibility/taxability can only be adjusted for the year of an order or agreement and the one tax year prior to the order or agreement.  This means that if a Court is deciding an issue of retroactive support outside this period, a judge needs to consider the different tax treatment.  Tax efficiency is not available, so there are fewer dollars to go around.

Justice Shelston of the Ottawa Superior Court of Justice recently addressed this issue in Verhey v. Verhey.

He considered whether a retroactive support adjustment should be adjusted so that the recipient had the same after-tax benefit as she would have had, if tax had been paid on the support, or whether the payor should only have to pay what he would have paid, after tax, had support been deductible.

Justice Shelston, citing Charron v. Carriere, and Patton-Casse v. Casse, took a “balanced” approach by averaging the after-tax benefit of the support to the recipient and the after-tax cost of the support to the payor, in other words, he used the ‘after-tax midpoint.’

While the after-tax midpoint is often a fair outcome, Justice Shelston emphasized that, as per the Charron decision, the test on what method to use is a subjective one that should look at all circumstances including the parties’ respective financial circumstances.

The tax rules for spousal support have several exceptions and caveats.  If you need advice on the tax rules and implications for spousal support, do not hesitate to contact me.

This blog post was written by Mary Cybulski a member of the Family Law team.  She can be reached at 613-566-2073 or at mary.cybulski@mannlawyers.com.

More Resources

Blog |
Business Law

By: 

On October 19, 2021, the new Ontario Business Registry System launched. This new online registry now enables businesses and not-for-profit corporations to directly access services[...]
Blog |
Environmental Law

By: 

Posted October 14, 2021

In the decision of Greenpeace Canada (2471256 Canada Inc. v. Ontario (Minister of the Environment, Conservation and Parks), 2021 ONSC 4521, released September 3, 2021,[...]
Blog |
Employment, Labour, and Human Rights

By: 

Posted October 1, 2021

This blog continues our exploration of the potential employment law consequences stemming from the degree of control a party exerts within a variety of business[...]
Blog |
Personal Injury

By: 

Posted September 27, 2021

Personal Injury lawyers and their clients are all too familiar with the carnage and suffering caused by impaired drivers.  Canada has the worst rate of[...]
Blog |
Bankruptcy and Insolvency, Business Law

By: 

Posted September 24, 2021

As is noted by the Court of Appeal in McEwen (Re), released August 12, 2021, referred to here as “Traders”, the BIA is a complete[...]
Blog |
Wills, Trusts and Estates

By: 

Posted September 23, 2021

In-Trust For Accounts have become a common way for parents and grandparents to set aside money to finance their children or grandchildren’s post-secondary education. A[...]

Subscribe to Our Newsletter

Name*
Consent*
This field is for validation purposes and should be left unchanged.