Divorce is an upsetting time, but there are many important things to bear in mind aside from your emotions. Taxes being one of them.
The Canada Revenue Agency, or CRA, deems you to be separated when you have lived away from your partner (married) for 90 days or longer. In order to be recognized as ‘separated’ in the eyes of the CRA, you need to live in separate houses, and you cannot live in the same space.
Asset Transfers
Once the divorce has been finalized you need to consider the taxation issues on the various parts of your divorce. For instance, as part of a divorce a couple will divide their assets up accordingly, completing what is known as the ‘equalization payment’ and the asset transfer. The equalization payments are not normally taxed, mainly because the CRA consider you to have previously paid tax on that amount. However, if you are transferring assets, these are subject to taxation. This would be the current difference between the market value at the time and what you paid for them at the start. This can be delayed however using a rollover provision. In order to be sure of this, it’s best to seek out professional advice from a tax advisor.
Child Support
If you have children, you also need to be aware that payments made for child support are not taxed. Similarly, child support isn’t considered tax deductible for the person who is doing the paying. That is something else to be aware of. Spousal support however is taxable on both sides, and this something you should seek advice on, to ensure you’re not missing any important details.
When your divorce is complete, it is vital that you let the CRA know of your change in circumstances. This is because your taxation details will also change. You are able to do this change online, if you are registered, or you will need to do this in writing and complete a RC65 form, which informs the CRA of your change in circumstances. This letter or online change will trigger the CRA into checking your particular situation and from there your taxation will change, and you will be informed of any refunds that you may be entitled to as a result.
Of course, divorce is a complicated time for all parties, without adding taxation issues into the mix. It is vital to get the right information on taxation from a registered accountant or tax advisor and also to ensure that the professional you choose is experienced in divorce and family law. By doing this, you know you’re getting the most up to date information necessary and there are no loopholes that you are missing.
Failure to inform the CRA of your change in circumstances could also have severe consequences in terms of back pay and a large taxation bill coming your way. Only by informing the CRA as necessary and ensuring that you get the right information from a registered and professional person, can you ensure you’re following the right route.
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- The Capex Team