We all know that spousal support paid by a Canadian resident to a Canadian resident is tax deductible to the payor and must be included in the income of the recipient.
But what happens now where the support payor resides in the U.S.A. and the support recipient resides in Canada?
The U.S.A. has changed its spousal support laws as they relate to tax. A support paying individual in the U.S.A. can no longer deduct his (or her) spousal support payments. Similarly, the one who receives that spousal support (alimony) is no longer required to include those payments in her (his) income.
These changes are effective with respect to divorce or separation agreements and presumably court orders executed after 31 December 2018.
When we do our “Divorcemate” spousal support calculations, the program assumes certain tax implications. Without those tax implications, it’s a whole different ballgame.
So, how does this effect spousal support recipients who receive spousal support from U.S. payors where the order is made, or the agreement is signed after 31 December 2018? There is a tax treaty between Canada and the U.S.A. Where the U.S. authorities would no longer levy tax on the support payments upon the recipient if the recipient were to reside in the U.S.A, then the treaty prevents Canada from taxing its residents on spousal support that they receive pursuant to these post December 31st payments from the U.S.A.
This is something that lawyers and self-represented individuals will have to watch out for from now on.
Source re Canadian tax law as per tax treaty: Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital
From Article XVIII:
6. Alimony and other similar amounts (including child support payments) arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable as follows:
(a) such amounts shall be taxable only in that other State;
(b) notwithstanding the provisions of subparagraph (a), the amount that would be excluded from taxable income in the first-mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State. [Author’s emphasis]
Source re new U.S. tax law: http://hcbtax.com/changes-alimony-tax-treatment/
As of January 1, 2019, alimony payments, previously deductible under IRC §215, will no longer be deductible for US tax purposes where the separation or divorce instrument was executed after December 31, 2018. Furthermore, IRC §61(a)(8) has also been repealed to exclude such payments from the recipient’s US gross income.
Source re article available on the web: Davis Martindate Blog – A Recent U.S. Tax Reform is Impacting Canadians Receiving Alimony