Tax implications for spousal payments

If you are receiving spousal maintenance, you should consider the tax consequences of these payments. Ordinarily, payments that you receive from your ex-partner that come within the definition, are exempt from tax.

The Income Tax Assessment Act 1997, section 51.50 states the requirements to for the payments to be exempt from tax (i.e no tax needs to be paid, as it is not assessable income).

The requirements are:

  1. The payment is made to an individual who is or has been the maintenance payer’s spouse;
  2. to or for the benefit of an individual who is or has been:
    1. child of the maintenance payer; or
    2. a child who is or has been a child of an individual who is or has been a * spouse of the maintenance payer.
  3. The maintenance payment is not exempt if, in order to make it or a payment to which it is attributable, the maintenance payer:
    1. divested any income-producing assets; or
    2. diverted * ordinary income or * statutory income upon which the maintenance payer would otherwise have been liable to income tax.

Essentially, if you are receiving spousal maintenance in the ordinary course of things, it is exempt. If however, the spousal maintenance is paid above what is normally required in an attempt to minimse tax, this is tax avoidance which can be penalised, as well as the payments no longer being tax exempt.

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