Tax Tip Thursday

Separating and the CRA

We have been dealing with a lot of parents that are separated, so I thought I would talk to them this week.

First, I would just like to say, people don’t seem to mind spending tens of thousands on lawyers for their separation agreement, but don’t consider talking to an accountant about it. Personally, I think that is a mistake.

Documentation

When you have split up with your other half, this needs to be documented and the CRA needs to be informed, so be sure to note/agree on a date that the event occurred.

How do I do that?

You have a few options:

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

When to tell 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 in marital status by the end of the month after the month your status changed. For example, if your status changes in March, you must tell the CRA by the end of April.

If you have become separated, do not notify them 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 a spousal deduction, disability tax credits, Ontario trillium benefits, etc. can all be affected by the change in marital status, so it is important to get it right 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 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 having it in the court order or separation agreement.

Looking for Help?

We are happy to help smooth out the financial side of your separation. This may not be an easy time for you, best to make the money part easier! Book an appointment today.

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.