Tax and Spousal Support
In Ontario, the issue of whether support payments made to a dependant are taxable or deductible often arises in family law courts.
The law in Ontario is that child support is not tax-deductible to the payor, and is free of taxation in the hands of the recipient. However, spousal support, on the other hand, is tax-deductible to the benefit of the payor, and taxable in the hands of the recipient.
It is interesting to point out that although courts do not have jurisdiction to award spousal support free of taxation, this past year in 2014, Justice Wong of the British Columbia Superior Court, did just that.
In the case of Boekhoff v. Boekhoff, a wife sought to claim over $100,000 in arrears of spousal support that had been owed to her since 2001.
Throughout the 13 year period where arrears had allegedly accumulated, the wife settled down with a new common law partner, and subsequently negotiated an agreement with her former husband that would see him pay a smaller amount in spousal support per month than was previously ordered.
Justice Wong ruled that the agreement was valid and that the fact that the wife had allowed the agreement to survive for a number of years without enforcing the original court ordered spousal support amount, re-enforced the notion that their had been a valid subsequent agreement reached between the former spouses.
Justice Wong thereby ruled that the wife was estopped from claiming arrears of spousal support corresponding to the original court order. However, he ordered that the amount originally ordered by the first instance court was justified, and therefore, the husband would continue paying the wife the amount of spousal support that had been originally ordered by the first instance court.
However, shockingly, Justice Wong concluded his ruling by allowing these future support payments to be “tax-free” in the hands of the wife; an order he did not have the right to make.
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