Tax Implications of Vancouver retroactive lump-sum support
Have you or someone you know been ordered to pay a retroactive lump-sum support? Our Vancouver Lump Sum Support lawyers know the rules that apply to this area of family support law such as interest on late payments, reductions for loss of tax deductions and inclusions, and for future lump sum support calculations discounts for death, disability, remarriage, job loss, recipe of windfalls and remarriage to name a few.
If your Vancouver Lump Sum Support lawyer and you are unaware of these specialized factors you could really suffer financially. Hire our top rated* Vancouver Lump Sum Support lawyers today to protect yourself whether you are paying or receiving spousal or child support.
Vancouver spousal support and Vancouver Lump Sum Support lawyer Spencer MacLean, of MacLean Law provides a breakdown and analysis of the recent decision from the Ontario Superior Court of Justice in Hume v. Tomlinson, 2015 ONSC 843.
Remember spousal support payments are subject to tax deductions and tax inclusions whereas child support is a non deductible payment for the paying spouse and a non taxable payment in the hands of the parent who receives child support.
The recent Hume v. Tomlinson case explored the tax implications of retroactive lump-sum spousal support awards. Hume v. Tomlinson focusses on whether the lump-sum support award should be reduced to reflect tax consequences that impact both the payor and recipient. Payors ( the spouse who pays support) get a tax deduction for paying periodic spousal support and receiving spouses must declare it as income on their tax returns. Different rules apply to lump-sum payments ( 1 time payments) than to monthly payments.
Facts
Madam Justice Toscano Roccamo of the Superior Court of Justice ordered in December of 2014 that the Respondent (Husband) to pay Applicant (Wife) retroactive spousal support from March of 2012.
The Court referred to the Spousal Support Advisory Guidelines (the “SSAG’s’) and assigned the quantum to the mid-range value of spousal support. Additionally, it was ordered that the parties will offset any over-payment of child support by the Respondent against the amounts owed to Claimant in spousal support.
The Court’s Decision
While periodic spousal support that is paid on a monthly or yearly schedule is considered taxable income to the recipient and tax deductible for the payor, lump-sum spousal support awards are not. The Court in this case agreed with the Respondent that the tax implications in relation to lump-sum spousal support that reference the Spousal Support Advisory Guidelines must be taken into account when determining the appropriate value of support.
When determining appropriate quantum for support payments the SSAG relies on computer generated values from DivorceMate which calculate the net amounts of periodic spousal support payable. However, DivorceMate software does not address retroactive lump-sum payments.
One way to resolve this issue would require the parties to apply to the Canada Revenue Agency (the “CRA”) for an assessment on the proper tax adjustment. However, the Court agreed with the Respondent in this case that the CRA would likely benefit the support recipient and not the support payor. The Court further held that relying on the parties to make an application to the CRA would not guarantee a fair adjustment between the parties.
The Court decided to reduce the value of the arrears owing by the Respondent in this case. The original value of the support arrears was $14,363.02. The Respondent’s marginal tax rate was 37% therefor the value was reduced by 37% for a total of $9,048.70. The Court’s decision in Hume v. Tomlinson is in line with the approach adopted by the courts in various other cases.
As you can see, it is not unusual to receive a tax discount for retroactive lump-sum spousal support awards. What can be difficult is determining what percentage the award should be reduced by. In Hume v. Tomlinson the Court opted to use the support payor’s marginal tax rates. Other cases have shown the Court can use either the support payor or receipient’s tax rate or the average rate between the parties.
Unlike lump-sum support into the future there is no argument for additional discount for future contingencies such as job loss, disability or death – we will discuss lump sum support moving forward in future blogs.
Ideally family law clients will see a top lawyer immediately to ensure spousal and child support is paid promptly so a retroactive claim years later with all the stress and confusion that goes along with it is avoided. Let our Vancouver Lump Sum Support lawyers explain the rules and develop a strategy for you. Call us at 604-602-9000 or meet with us.
