How are Ontario child support payments taxed?
Parents who receive child support payments under an agreement or court order made after April 30, 1997, do not have to include those payments in their taxable income. Parents who make these payments cannot deduct the payments from their taxable income.
This tax rule does not apply to continuing support paid under agreements or court orders made before May 1, 1997. The old rule still applies until the agreement or order is changed. Under the old rule, parents receiving support must pay tax on the amount received, and parents paying support can deduct the payments from their taxable income.
The new tax rule means that more of the support money received by the parent with custody is available to spend on the children. It also means that parents paying child support under an agreement or court order made after April 30, 1997, will have less after-tax income than parents paying the same amount according to an agreement or order made under the old tax rule. Courts take this into account when making new support orders.
Parents who have a support arrangement under the old tax rule may agree that they want the new tax rule to apply. They can do this if they both sign a form called “Election for Child Support Payments (T1157)”, that says they want the amount of support to stay the same but the new tax rule to apply.
You can get this form from any tax services office. Or you can call the Canada Revenue Agency (CRA) at 1-800-959-2221 and ask to have a copy mailed to you, or download a copy from their web site at: http://www.cra-arc.gc.ca/formspubs/.
If one parent wants to change to the new tax rule, but the other does not, the parent who wants the change must apply to court to change the existing child support order or agreement. Parents thinking of doing this should be aware that when the court makes a new child support order or changes an existing order or agreement, it must apply the Child Support Guidelines.