What you may be less aware of is that legal fees for establishing, seeking an increase, or defending against a reduction of support are tax deductible. While less advantageous than filling out a form for a reduction in taxes for a payor of spousal support (doesn’t help your cash flow, and it’s the reverse of the payor’s situation where it’s kind of like an interest-free loan for a year, from the government), it may provide some assistance if you think you may have difficulty budgeting and would rather just have the extra money deducted at source on a monthly basis rather than risking a bill in April that you may not have budgeted for. Likewise, if you’re a recipient of spousal support, you can indicate additional amounts that you’d like taken off on your TD1. Otherwise, you’re essentially lending the government money for a year-and it’s money that you can probably use. This means no big refund in April, but it also means less of an interim cash crunch. For example, if you earn $120,000 gross, but are paying $20,000 in spousal support, you can file this form to make sure you only get taxes taken off as if you’re earning $100,000, which means more cash in your hands on a monthly basis. If you’re paying spousal support, you may also be aware that you can fill out a T1213 Source Deduction Form to decrease the amount that gets deducted from your paycheque at source, like an RRSP deduction, periodically, rather than having to wait. If you’re involved in a family law case, you probably know that monthly spousal support is tax deductible to the payor and taxable in the hands of the recipient, just like your RRSP contributions (for a payor)-don’t forget to declare it, but remember that you need a court order or written agreement for the Canada Revenue Agency (CRA) to accept it.
There are a few ways to reduce that expense, or at least make it easier.
Family law litigation can be stressful and expensive, which in turn can add further stress.
It’s tax time again, and if you’re a family law litigant, or were last tax year, you probably have a lot on your mind.
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