There are several implications of marriage breakdown in the tax system. If one spouse earned no or very low income, the higher income spouse may lose the credit for a dependent spouse. He or she may need to adjust the amount of tax withheld from source on income received. A claim for a dependent spouse can be made in the year of separation.
If you are a spouse paying spousal support, you may deduct payments made in accordance to an agreement or court order. Proper records must be maintained. If you are the spouse receiving these payments, this income must be reported. You may need to remit periodic installments of income tax for these amounts received.
Only periodic payments are reportable. A lump sum payment made in accordance to a legal agreement would not be deductible, or taxable. A lump sum payment to cover arrears payments should however be deductible.
If children are involved, there may be available to one or both spouses a credit for eligible dependent. In order to receive this credit, the child must be dependent upon you for support. Only one person may make a claim for a particular child. If you are required to make support payments for the benefit of a child, you are not allowed a claim. If for example, joint custody is granted for two children and no child support payments are required, it may be possible for each spouse to make a claim for eligible dependent for one child each. If there is joint custody for both children, but one spouse is required to make support payments for both children, then only the spouse receiving support can make a claim.
For any agreement after May 1,1997, any amounts paid for the support of children are not deductible by the payer and not taxable to the payee. For agreements entered into prior to that date, the payments are deductible and taxable unless the agreement has been amended by a joint election after that date.
Legal fees incurred to establish a right to spousal support as well as to increase support is now deductible. Please see CRA's page on marital status.
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