Filing taxes for divorced clients

Why read this?

You are:

– paying spousal or child support.

What to do

1. Report spousal or child support payments

• Spousal support payments are deductible for the payer, and income for the recipient.
• Due to a change in the law, only child support payments made under agreements written before April 1997 are deductible by the payer. Those payments are considered taxable income for the recipient.

TIP: You can elect to apply current tax rules. You and your ex-partner must complete Form T1157, Election for Child Support Payments and send it to CRA.

• Register court orders or written agreements for spousal or child support with CRA. Complete a separate Form T1158, Registration of Family Support Payments for each agreement, and attach it to the return.

If you pay child or spousal support:

• Enter total payments on Line 230 of the return.
• Enter the deductible payments (spousal support) on Line 220 of the return.

If you receive child or spousal support:

• Enter total payments received on Line 156 of the return.
• Enter the taxable portion of the payments on Line 128 of the return.

TIP: If you’ve received a retroactive lump-sum support payment of more than $3,000, the payer should give you a completed Form T1198, Statement of Qualifying Retroactive Lump-Sum Payment. You must include this form with your income tax and benefit return to ask CRA to recalculate your taxes by distributing the income across prior years. If CRA’s assessment results in less tax, it will list the result on yournext Notice of Assessment or Reassessment.

2. Claim support payment legal fees

• On Line 221 of the return, your client can deduct legal fees paid to:
  • collect late support payments;
  • establish support payments as a beneficiary;
  • establish support payments from her child’s legal parent, is IF? the parents is not her current or former spouse or partner; or
  • get an increase in support payments.
  • Recipients can deduct fees. Ineligible legal fees for payees include those incurred to:
    • get a separation or divorce;
    • establish or negotiate support payments; or
    • establish custody or visitation.

Sources: Dora Mariani, CA, CPA, CFP, TEP principal, Segall LLP; Sam Lackman CRA, KPMG’s Tax Planning for You and Your Family 2015.