Changing Support Agreements: When Spousal Support Becomes Child Support

When it comes to support payments following a separation or divorce, the distinction between spousal support and child support is not just semantic—it has real tax implications.

Tax Treatment of Support Payments

• Spousal support is generally taxable to the recipient and deductible by the payer.

• Child support, on the other hand, is not taxable to the recipient and not deductible by the payer.

Importantly, if a support amount is not clearly identified in a legal agreement or court order as being solely for spousal support, it is presumed to be child support.

A Case in Point: Tax Court of Canada, July 16, 2025

A recent decision by the Tax Court of Canada highlights the importance of clarity in support agreements. The case involved a taxpayer who claimed $33,000 in spousal support deductions for the 2019 tax year. The central issue? Whether monthly payments of $8,000, made under a July 2019 consent order, qualified as deductible spousal support.

Background

• From January to June 2019, the taxpayer made monthly payments of $3,500 under a separation agreement that explicitly labeled the amount as spousal support. These deductions were allowed.

• However, starting July 1, 2019, a new consent order replaced the original agreement. It required monthly payments of $8,000, but did not specify how much was for spousal support versus child support.

The Court’s Ruling

The taxpayer argued that, as under the previous agreement, $2,500 of the $8,000 should be considered child support, leaving $5,500 as deductible spousal support.

The Court disagreed.

Because the new consent order did not clearly allocate any portion of the $8,000 as solely spousal support, the entire amount was deemed to be child support. As a result, none of it was deductible by the payer or taxable to the recipient.

Key Takeaway

Clarity is critical. When modifying support agreements, ensure that any spousal support is explicitly identified in the new order or agreement. Otherwise, you risk losing valuable tax deductions.

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.

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