Paying or Receiving Child Support – Across the Border

If you are a Canadian contemplating work or residence in the U.S. or an American planning to work or live in Canada, and are subject to the payment of Alimony or Child Support at home, the following will be of interest to you.

According to Article VI of the Canada United States Income Tax Convention, 1980:
 
"6. Alimony and other similar amounts (including child support payments) arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable as follows:

1. such amounts shall be taxable only in that other State;    
2. notwithstanding the provisions of subparagraph (a), the amount that would be excluded from taxable income in the first-mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State."

Paragraph 6(a) provides that only the State of which a person is resident has the right to tax alimony and other similar amounts (including child support payments) arising in the other Contracting State and paid to such person. However, under paragraph 6(b), the state of residence shall exempt from taxation the amount that would be excluded from taxable income in the State of source if the recipient were a resident thereof. Thus, if child support payments are made by a Canadian resident to a resident of the United States, the United States shall exempt from tax the amount of such payments, which would be excluded from taxable income under section 56(1)(b) of the Income Tax Act (Canada). Paragraph 6 does not define the term "alimony"; the term is defined pursuant to the provisions of paragraph 2 of Article III (General Definitions).