Supreme Federal Court rules out income tax levied on alimony and child support

On June 3, 2022, the Supreme Federal Court of Brazil - STF held that Income Tax (IR) levied on amounts received as alimony and child support (jointly called “aliments” in the country) is unconstitutional. The Plenary Session was held online, in the ruling of the Direct Lawsuit of Unconstitutionality No. 5,422, filed by the Brazilian Institute of Family Law (IBDFAM).

Previously, recipients had to add the amounts received as aliments to their own income, with income tax being levied on the total amount earned.

The collection was firmly grounded in the tax legislation. Paragraph 1 of article 3 of Law No. 7,713/1988, which regulates Income Tax, classifies alimony and child support received in cash as gross income and, therefore, subject to taxation. In addition, article 46 of the Attachment to Decree No. 9,580/2018 and article 3, heading and paragraphs 1 and 4 of Decree-Law No. 1,301/1973 also include aliments under taxable income.

According to the rapporteur, Justice Dias Toffoli, the amounts received as aliments under family law do not constitute income or earnings of any form, representing only an entry of values. As there is no increase of income for the recipient, the levy of income tax is unjustified.

Moreover, the obligor’s income, from which the support money is deduced, is already subject to taxation, meaning that levying income tax again on the same amount, after the money has been paid to the recipient, would lead to double taxation. In the Justice’s own words: “when obligors receive income or earnings of any nature – from which a portion is deduced to pay aliments to their creditors – this already represents, in and by itself, a taxable event for income tax. In this way, submitting the amounts received by recipients to income tax would result in re-levying the same tax on the same income source.”

Injunctions have been ruling out income tax levy

The ruling of the Supreme Court has served as grounds to rule out income tax levied on amounts received as alimony and child support. Taxpayers who took the matter to court have already been granted injunctions to obtain refunds of amounts unduly collected.

What happens from now on?

With the Court’s decision, it remains to be seen whether the Federal Revenue Service will align itself to the Supreme Court's position, no longer collecting income tax on aliments, or whether taxpayers will have to bring matters to court, seeking exemption from the tax unduly collected or requesting refunds for the amounts paid in income tax over the past five years.

The ruling is general in nature and its effects apply to all interested parties, being enforceable against the other agents of the Judicial Branch and the Public Administration at all levels. However, it is necessary to wait for the decision to become final and unappealable, as a motion for clarification may still be filed so as to settle the date as of which its effects will be in force.

One should also keep in mind that the National Congress may pass a new statute overturning the ruling of the Supreme Court, bringing in new arguments to reinstate the tax collection. Therefore, it is necessary to keep an eye out for the issuance of new tax laws.

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