Know the guidelines, but make sure you put kids first
Q: Since my divorce in 1995, I have always deducted my alimony and child-support payments. For several years, I have been in default because my ex-wife and I could not agree on some of the payments and how they were to be spent. In 2005, my ex and I amended the old agreement and the new payments have since been current. I was shocked and surprised when I received my assessment from Revenue Canada and was denied the deduction for my child-support payments. Can I appeal their decision?
A: You can appeal their decision. However, success would be marginal. The Family Responsibility Office (FRO) has thousands of delinquent payer cases on their desk that have failed to uphold their responsibilities. Initiatives by government agencies and the F.R.O. use a wide variety of powers such as garnishing wages, suspending driver licences, holding back on tax refunds and reporting to credit bureaus.
The F.R.O. works diligently to help families receive what is deserved. However, although not exclusive to fathers, “Deadbeat Dads” continue to evade their responsibilities by going underground to avoid garnishments, drive illegally without licences, while others leave the province to avoid being traced.
Spousal (alimony) payments continue to be taxable by the recipient and deductible by the payer. Child-support payments (not same as spousal payments) under an agreement or court order prior to May 1, 1997 continue to be deductible by the payer. Effective May 1, 1997 — pursuant to a court order or an agreement entered after this date — will be subject to the new rules. Child-support payments are no longer taxable by the recipient nor can the payer deduct the amounts on their tax return. The child-support rules apply to the following beginning May 1, 1997.
- Agreements entered after May 1, 1997.
- A court order to pay after May 1, 1997.
- If both parties enter into a new agreement.
- A new court order is issued.
- An old agreement was particularly altered.
Use a lawyer to ensure that both parties are protected. Most importantly, put the children first.
Henry Choo Chong, CGA provides accounting and tax services to individuals and businesses in the GTA. He can be reached at 416-590-1728, ext. 304. Any questions to Money Matters should be e-mailed to firstname.lastname@example.org.