I receive a number of referrals of clients going through the divorce process and wanting to purchase their own home. As we are moving into tax time, I felt this article may be timely on working with Canada Revenue Agency (CRA).
- Are You Separated in the Eyes of Canada Revenue: CRA considers you separated when you live separate and apart for a period of 90 days.
- Inform CRA: the CRA expects you to notify them when your marital status changes. You can call, do it online, or fill out and mail a marital status change form.
- Write-Off Legal Fees Where You Can: It may be a pleasant surprise after paying those big legal bills that you may be able to write-off a portion of those fees. The CRA will allow you to deduct legal fees that were paid to obtain or collect child or spousal support.
- Claim the Eligible Dependent Tax Credit: If you have children, you may be able to claim them as eligible dependents. If you have primary custody of those children, the credit may go to you. If you have shared custody, then you will have to decide which parent will claim the credit
- Support Payments & Taxes: Child support is not taxable in the hands of the person who receives the support, and the person who pays it can’t claim the support as a deduction. Spousal support, however, is fully taxable as income. Additionally, if you are paying spousal support to your ex, you can claim it as a deduction on your return.
- Who Receives the Child Benefits: If you have joint custody of your children, you may have to share child benefits with your ex. You may see a rise in the benefit amount, as your household income has decreased, but the CRA may split the benefit 50/50 between you and your ex. There are also certain spousal tax credits you will now be no longer eligible for. The pension income amount, the disability amount, and the tuition, education and textbook amounts, can no longer be shared when you split. But, your lower household income may mean an increase in the amount of child benefit you are entitled to.
This is very general info, please check with your lawyer or accountant for more info. If you need a referral of a good divorce mediator or accountant, let me know.
Colleen Saunders is a 25 year veteran in the mortgage industry serving Oakville, Burlington, Mississauga and Toronto and offering all mortgage related services such as 1st & 2nd mortgages, private mortgages and more.