Tax Treatment of Support Payments
As a rule, child support awarded pursuant to a judgment rendered or a written agreement entered into after April 30, 1997, is tax-neutral. This means that the debtor of support is not required to deduct the support from his or her income, and the creditor of support does not have to add the support amount to his or her income.
Child support is also tax-neutral in the following situations:
- The creditor and debtor may make a joint election on form T1157, Election for Child Support Payments. On the form, indicate a date after April 30, 1997, as of which you want the child-support payments to be tax-neutral. For us to take this election into account, you must send us a copy of this document. The child-support payments will be tax-neutral as of this date. Note that your election does not change the amount of support.
- Child support is awarded under a judgment rendered or a written agreement entered into before May 1, 1997, but a new judgment or written agreement dated after April 30, 1997, reduces or increases the amount of child support. As of the date on which the first payment of the revised amount of child support is made, the support will be tax-neutral.
- A judgment rendered or a written agreement entered into before May 1, 1997, specifies a date after April 30, 1997, as of which the child-support payments will be tax-neutral for both the creditor and the debtor.
Support payments for spouses or former spouses must be taxed even if they were established or modified after April 30, 1997. The debtors must, therefore, deduct the payments from their income and the creditors must include them in their income.