Separated or Divorced Spouses
10.30. The present law (section 23 (1)) exempts income received by way of periodical payments in the nature of alimony or maintenance, by a woman from her husband or former husband. There is a proviso denying the exemption where the husband or former husband has, for the purpose of making such payments, divested himself of any income-producing assets, or diverted from himself income upon which he would otherwise be liable to tax. The husband is not allowed a deduction of the payments made to his wife or former wife.
10.31. In some countries the wife or former wife is taxed on the alimony or maintenance receipts and the husband is allowed a deduction of the payments. A system of this kind was proposed in Australia in 1942 but was rejected by the government of the day largely on the ground that a taxpayer who was separated or divorced from his wife would have been placed in a more advantageous position than a taxpayer who was not. The system, in effect, involves an income split, which would not be open to the latter.
10.32. The Committee would consider it appropriate to allow a husband a deduction for alimony or maintenance payments,
whether or not divorced from his wife,
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provided there are safeguards against connivance to exploit the
potential tax advantages and that the payments are taxed as the income of the wife or former wife. Already the law, in
effect, allows a split of income between husband and wife where for the purpose of making payments to his wife the
husband has divested himself of income-producing assets or diverted from himself income upon which he would otherwise
be liable to tax. As explained in paragraph 11.45 section 102B (4) protects such a split of income from the operation
of the short-term assignment provisions. The policy reflected in section 102B (4) should, in the view of the
Committee, extend to allow a deduction of the payment where the husband is not in a position to divert income to his
wife.