Child Support – The May 1, 1997 Divide
The taxable status of child support is fairly straightforward under the current Income Tax Act. The current rules provide that child support is not taxable to the recipient and, accordingly, it is not tax deductible to the payor. That is, it is paid with after tax dollars which do not attract tax in the hands of the recipient.
However, there is a different to child support payments made pursuant to a written agreement or court order made before May 1, 1997. In these circumstances, the child support payments ARE taxable to the recipient and deductible to the payor, unless:
- Both parties elect to have child support payable after a certain date be non-deductible and non-taxable (i.e. to have the current rules apply). To make this election, a specific form (Form T1157) must be signed and filed with the CRA.
- The order or agreement is varied after April 30, 1997 to change the amount of child support. This does not include automatic changes to the amount of support based on cost-of-living increases provided for in the order or agreement.
- The order or agreement provides that the current tax rules will apply to payments made after a specified date.