Cross-Border Alimony and Spousal Support: Canada vs US Tax Treatment

Canada and the US treat alimony (spousal support) differently for tax purposes. Canada follows the traditional rule: alimony is deductible by the payer and taxable to the recipient. The US changed its rule in 2017: for agreements executed after December 31, 2018, alimony is non-deductible by the payer and tax-free to the recipient. When one former spouse lives in Canada and the other in the US, this mismatch creates situations where the same payment is taxed in one country but not the other, or deductible in one but not the other.

Canadian rules: still deductible/taxable

Canada’s treatment has not changed. Under ITA 56(1)(b) and (c), periodic spousal support payments received under a court order or written agreement are included in the recipient’s income. Under ITA 60(b) and (c), the same payments are deductible by the payer.

Qualifying conditions:

• The payments must be periodic (not lump-sum)
• Made under a court order or written separation agreement
• Paid to a spouse or former spouse (or common-law partner)
• The couple must be living separate and apart
• Child support is not deductible/taxable (only spousal support)

Third-party payments: amounts paid directly to a third party (mortgage, tuition) can qualify if the court order or agreement specifies them as support.

US rules: the TCJA split

The Tax Cuts and Jobs Act (2017) changed the US treatment effective for agreements executed after December 31, 2018:

Post-2018 agreements:

• Payer: no deduction (IRC 215 repealed)
• Recipient: not included in income (IRC 71 repealed)
• The payment is treated like a non-taxable transfer

Pre-2019 agreements (grandfathered):

• Payer: deductible (old IRC 215)
• Recipient: included in income (old IRC 71)
• This grandfathering continues until the agreement is modified AND the modification expressly states that the post-2017 rules apply

The modification trap: if a pre-2019 agreement is modified after 2018, the modification does not automatically trigger the new rules. The new rules apply only if the modification expressly provides that the TCJA amendments apply. This is a drafting issue: if the modification is silent on the TCJA, the old rules continue.

Cross-border scenarios

Scenario 1: Canadian payer, US recipient (post-2018 agreement)

The Canadian payer deducts the alimony on the T1 (line 21999/22000). The US recipient does not include it in US income (TCJA). Neither country collects tax on the payment.

This is the favorable scenario for the parties collectively: the payer gets a tax benefit, and the recipient pays no tax. The total tax paid on the alimony is negative (the payer’s deduction reduces their tax, and the recipient owes nothing).

Planning note: if the parties are negotiating the support amount and can choose which country’s law governs (Canadian court order vs US court order), having the Canadian-resident payer’s obligation set under a Canadian court order ensures the deduction qualifies under ITA 60(b)/(c).

Scenario 2: US payer, Canadian recipient (post-2018 agreement)

The US payer gets no deduction (TCJA). The Canadian recipient includes the amount in income and pays Canadian tax (ITA 56(1)(b)/(c)).

This is the unfavorable scenario: the payment is taxed (in Canada) but not deducted (in the US). The total tax on the alimony exceeds what either country alone would impose.

Can the Canadian recipient claim relief? No. Canada taxes the recipient on the support received because it meets the conditions of ITA 56(1)(b). The fact that the US payer gets no deduction does not affect the Canadian inclusion. There is no treaty provision that relieves the Canadian tax based on the US treatment of the payer.

Can the US payer claim any relief? Under pre-2019 agreements, the US payer could deduct alimony on the US return. Under post-2018 agreements, no. The payer might consider whether Article XVIII(3) of the treaty overrides the domestic TCJA, but the treaty generally defers to domestic law on the deductibility question.

Scenario 3: pre-2019 agreement, either direction

Both countries follow the traditional rule: deductible by payer, taxable to recipient. The FTC coordinates the two taxes on the recipient’s side.

If the recipient is in Canada: the support is Canadian income, and any US withholding (if applicable) generates an FTC. In practice, the US does not withhold on alimony payments to non-residents (no Part XIII equivalent for alimony in the US), so the FTC question rarely arises.

If the recipient is in the US: the support is US income (old IRC 71). If Canada withholds on the payment (Part XIII may apply to periodic payments to a non-resident, though this is uncommon for alimony), the US recipient claims the FTC.

Child support

Child support is not deductible by the payer and not taxable to the recipient in either country. This has not changed. The cross-border mismatch applies only to spousal support (alimony).

If the court order or agreement provides for both child support and spousal support, the payments are applied first to child support. Only amounts clearly designated as spousal support are deductible/taxable. If the order does not separately specify the amounts, the entire payment may be treated as child support (non-deductible, non-taxable) by CRA.

Lump-sum payments

Lump-sum settlements are generally not deductible in Canada (they must be “periodic” to qualify under ITA 60(b)/(c)). The US pre-2019 rules also required periodicity. A one-time equalization payment is a property division, not alimony, and is not deductible in either country.

However, arrears paid in a lump sum (catching up on periodic payments that were missed) may qualify as periodic payments in Canada, because they represent unpaid periodic obligations.

Reporting mechanics

Canadian payer: deduct on line 21999/22000 of the T1. Attach a copy of the court order or agreement. Report the recipient’s name, address, and SIN (or foreign equivalent).

Canadian recipient: include on line 12800 of the T1. If the payer is a non-resident of Canada, the recipient reports the gross amount received.

US payer (pre-2019 agreement): deduct on Schedule 1, line 19a of Form 1040. Report the recipient’s SSN or ITIN.

US recipient (pre-2019 agreement): include on Schedule 1, line 2a of Form 1040.

US (post-2018 agreement): no reporting required by either party. The payment is invisible on the US return.

What should I do next?

If you are paying or receiving cross-border spousal support, check whether your agreement is pre-2019 or post-2018 (the execution date, not the divorce date, controls). Determine which country’s rules apply to each party. If you are negotiating a new agreement, coordinate with a cross-border CPA and family lawyer to structure the payments for the best combined tax result.

• Cross-border divorce: splitting retirement accounts, the retirement account division companion
• Form 1116: why isn’t my FTC dollar for dollar?, the FTC mechanics if withholding applies
• I’m leaving Canada for the US: a tax checklist, the broader departure framework

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.