Before May 1997, the Income Tax Act allowed the paying spouse a deduction for child support payments, while the spouse who got the payments had to include them in her income. As of May 1997, child support is no longer taxable or tax deductible.
What happens if your child support agreement was made before May 1997 but changed later? That was Mr. Chadwick’s case: the spouses signed a separation agreement in 1996; it had Mr. Chadwick pay his wife child support. In 1998, the child support was incorporated in a divorce order. Did that 1998 order make the support payments no longer deductible? Justice Paris in the Tax Court thought it did. The FCA disagreed.
“While a child support amount payable under an agreement or order made prior to May 1997 is generally subject to the old regime, there are four exceptions to this rule: … when: (i) the parties file a joint election; (ii) the pre-May 1997 agreement or order is varied; (iii) another agreement or order is made after April 1997, the effect of which is to change the total child support amounts payable; or (iv) the pre-May 1997 agreement or order specifies a particular day after April 1997 as the commencement day of the agreement or order.
“On the specific facts of this case, the parties demonstrated a clear intention to incorporate the provisions of their Agreement in the uncontested and on-consent Divorce Judgment that followed. The fact that a relatively minor item was not in the Divorce Judgment and that the length of the obligation to pay child support was prolonged due to the operation of the Divorce Act is not, in my view, sufficient to negate the clear intention of the parties.” (Paras. 4 and 7)