Support Payments and the Personal Income Tax

While income splitting for tax purposes is not generally allowed in the Canadian income tax system, the tax law does allow persons making support payments to transfer liability for tax on the payments to the recipient of the payments. The Canadian rule was copied from U.S. precedent even though Canada used individuals as the income tax unit while the U.S. had endorsed income splitting through adoption of a marital unit. The paper explores the conceptual arguments for and against income splitting of support payments against the benchmark framework of the goals of the progressive income tax system and notions of personal consumption. It suggests the Canadian rule is inconsistent with the benchmark principles which may explain the absence of similar rules in many other jurisdictions