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.