Tax Tip:   Lump-Sum Support Payment

In order for spousal support payments to be deductible to the payer, the recipient must have discretion as to its use, the individuals must be living separate and apart because of a breakdown in their marriage or common-law relationship, and, the amount must be:

  • payable to the recipient;
  • payable as an allowance for the maintenance of the recipient;
  • payable on a periodic basis; and
  • payable under an order of a competent tribunal or under a written agreement.

In a June 20, 2014 Technical Interpretation, CRA discussed the third criterion noted above, the amount must be payable on a periodic basis. Generally, an amount paid as a single lump sum does not qualify as an amount payable on a periodic basis. However, there may be situations where this is not the case. This occurs primarily where the amount represents a series of periodic payments in arrears after the date of the Court Order or Written Agreement.

This could apply to a single lump-sum arrears payment, or to multiple lump-sum arrears payments. That said, a lump-sum payment to obtain a Release from a liability imposed by an Order or Written Agreement may not be considered to be a periodic payment.

Action Item: Let us know if you are considering a lump-sum support payment, or, need help with the tax implications of a relationship breakdown.