In Australia (and the UK and most developed economies) when one party to a child support arrangement pays another party a child support payment, the payment is non-assessable/non-deductible. Effectively, the payer gets no tax deduction and the payee does not include it in their taxable income… But not everywhere…
In the Solomon Islands Income Tax Act are the following two provisions…
3(1) Subject to this Act, tax shall be charged for each year upon the income for that year of any person in respect of –
any amount received by way of alimony or allowance under a decree of divorce, a judicial order of separation or maintenance, or a deed of separation or maintenance;
18(3) In ascertaining the total income of any person for any year the following amounts shall be deducted—
(d) any amount paid during such year by such person by way of alimony or allowance under a decree of divorce, a judicial order of separation or maintenance or a deed of separation or maintenance
So in the Solomon Islands the payer gets a deduction and the payee declares the amount as income.
From experience this is not often complied with in the Solomons due to a heavy reliance on a PAYE withholding system that does not take this into account (most audit work is to make sure employers are withholding rather than individual tax returns are being done).
But this does mean, as year end comes, many people want to catch up any outstanding child payments to get the deduction, thereby encouraging people to pay.
So, maybe we should consider this in Australia. But like a good tax lawyer, I am already scheming.
If I “separate” with my amazing and wonderful wife, but continue to live with her and our kids, she could agree to pay me child support, effectively achieving income splitting… Maybe I need to think about this a bit more… Not just the tax policy idea, but more importantly making sure my ideas don’t encourage my wife to “separate” from me.