Are lump sum support payments taxable to the recipient?

Lump-sum payments are generally not taxable unless they are made to bring overdue periodic payments up to date or are specifically ordered as retroactive payments. You also cannot claim a tax deduction on legal fees spent to get a lump-sum payment.

As per the Canada Revenue Agency (CRA): where all the requirements of a support amount are otherwise met, the amount is deductible by the payer and included in the recipient’s income. Where the amounts paid are attributable to amounts owing in prior years, the amount may be a qualifying retroactive lump-sum payment and a special tax calculation may be available. 

For more information please refer to the CRA article: Income Tax Folio S1-F3-C3, Support Payments

As per CRA: If you received a lump-sum support payment, parts of which were for previous years, you have to report the whole payment in the year the lump‑sum payment is received.
However, you can ask the CRA to tax the parts for the previous years as if they were received in those years if all of the following situations apply:

• The amount that applies to previous years is $3,000 or more (not including interest).
• You were resident in Canada.
• It is to your advantage for tax purposes.

The payer of the support payments should give you a filled-out Form T1198, Statement of Qualifying Retroactive Lump-Sum Payment. Include this form with your tax return to ask for this special tax calculation on a retroactive lump-sum payment. The CRA will tell you the results on your notice of assessment or notice of reassessment. For more information, see Lump-sum payments.

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