The Cross Border Tax Savings

That can save thousands and thousands of dollars on spousal support

If you have a spouse ordinarily resident in Canada who is a payor of spousal support to a spouse who resides ordinarily in the U.S.A. (and it is properly set out in their Agreement or Court Order), then the payment of spousal support by the payor is tax deductible to them, but the recipient living in the U.S.A. does not pay tax upon the spousal support received. So it is deductible, but not includable in income and depending on tax rates, the savings can be enormous and certainly for the payor spouse here in Canada as much as more than 53%.

The same would also apply to a Canadian payor paying spousal support to a spouse in Israel or Japan. So the tax treatment of spousal support where the recipient is in another country ought to be checked in advance of the payment being set and certainly before any agreement is signed.

This spousal support loophole would apply equally to heterosexual or same sex couples.

The support paid must be paid periodically which would mean, weekly or monthly or bimonthly, but it would have to be a repetitive payment paid for the support and maintenance of a spouse and must be either paid directly to the spouse or to third parties (permissible suppliers of services such as a landlord). The list must be checked to make sure the third party payment is accepted to the Canadian Revenue Department.

The spouses must be separated and living separate and apart at the time the payments are made.

Credit for assistance with this article is given to Andrew Freedman of Duff & Phelps for their wonderful volume on Tax Principles of Family Law which they produce yearly to assist the Family Law Bar.