Tax Tip Thursday

Marriage Breakdown

We have been dealing with a lot of parents who are separated, so I thought I would write about them this week in case you are recently separated as well.

First, I would like to point out that people don’t seem to mind spending tens of thousands of dollars on lawyers for their separation agreement, but never seem to consider talking to an accountant as well. Personally, I think this is a mistake.

Did you know that you need to document when you separate and inform the CRA? You must agree with your ex-spouse on the date that it occurred and send in your notice.

How Do I Inform the CRA?

You have four options for informing the CRA of such a change:

  1. MyCRA Account
  2. MyBenefits CRA or MyCRA mobile apps
  3. Call 1-800-387-1193 if you are a benefit recipient
  4. Submit Form RC65 Marital Status Change

When Do I Need to Inform the CRA?

If you recently got married, divorced, became widowed, or entered into a common-law partnership, you must tell the CRA about the change by the end of the month after your status changed. For example, if your status changes in March, you must tell the CRA by the end of April. The exception to this is separation. If you have become separated, do not notify the CRA until you have been separated for at least 90 days.

Benefits and Credits are affected immediately and will be recalculated beginning the month after the split. Benefits such as spousal deductions, disability tax credits, Ontario trillium benefits, etc. can all be affected by the change in status, so it is important to get it at the right time or it could come back to haunt you.

Spousal Support

If there is support involved, there are some very specific criteria that determine whether it needs to be included in income of the recipient and/or included as a deduction for the payor. If you know these criteria, you work towards a solution that will provide you with the ability to deduct the support payments or so that you will not have to include them in income. Just remember, sometimes these goals are not congruent.

The key to having the support deductible is that it is court ordered/part of the separation agreement. Lump sum payments are almost never deductible, unless they are paying back support (as outlined in the court order or agreement).

The key to not including it in income is to not have it in the court order or separation agreement.

These are very broad brush strokes and you should definitely consult with me for your specific situation.

Food for Thought

If you are splitting up or have recently split up, you should definitely consult with me to get the right advice. It could save you tens of thousands of dollars!

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.