Payor Spouse Could be Liable for Withholding Tax
A payor spouse who pays maintenance or support to a non-resident spouse may be liable for withholding tax pursuant to section 212 of the Income Tax Act (Canada).
This was the case in Marks v. Tokarewicz [2004] O.J. No. 92 (Ont. C.A.). The wife received $3,500 per month from the payor husband while she was living and attending school in the Dominican Republic between 1988 and 1994.
The wife did not file income tax returns in Canada or pay any income taxes in Canada for the years she was receiving spousal support in the Dominican Republic. When the wife returned to Canada in 1994, she found out that she owed $98,091.73 to Revenue Canada (now Canada Customs and Revenue Agency).
The husband also suffered financial consequences of the wife’s failure to declare and pay income taxes in Canada. Revenue Canada determined that the husband was personally liable in the amount of $28,059.32 for failing to withhold taxes as a result of the spousal support payments he made to the wife while she was residing in the Dominican Republic.
Payor spouses should talk to their tax advisors and be alert to this potential liability where the recipient spouse is residing outside of Canada.
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