Deciding to split is hard enough as it is, WITHOUT the stress and worry of what to do come tax season. Fear not, ABB’s got you covered! Check out our list of things that you’ll need to consider this spring.
#1: Proof of Separation
The taxpayer has the responsibility of proving separation to CRA. This is relevant for a number of deductions, non-refundable tax credits, benefits etc. that you may be entitled to, including:
- GST/HST credits
- Working Income Tax Benefit
- Canada Child Tax Benefit
- Eligible Dependent Credit
- Child care expenses
Want to learn more about validating your eligibility for benefits and credits? Check out CRA’s overview here: https://www.canada.ca/en/revenue-agency/services/child-family-benefits/validating-your-eligibility-benefits-credits.html
#2: Spousal Support
First, let’s talk about what qualifies as “spousal support” payments. Spousal support payments must have the following characteristics:
- The payer and the recipient mist be living separate and apart due to a relationship breakdown at the time the payment was made.
- Payments are for the maintenance of the recipient
- The recipient can decide how the money will be spent
- The payments are made periodically (Ex. Quarterly, monthly, weekly)
- The terms and schedule of payments are set out in a written agreement or court order
Now, when it comes to taxes, according to CRA,
“The person who makes spousal support payments may deduct the amounts paid from income, generally reducing taxes owning. The person who receives spousal support payments must include the amounts as income and may have to pay taxes on that income. This must be done even if the person making the payments does not take advantage of the deduction.”
Not sure how to notify CRA of spousal support payments?
You’ll need to submit Form T1158, Registration of Family Support Payments, which you can access and download here: https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1158.html
Besides Form T1158, you’ll need to send CRA a copy of your written agreement or court order. You should register the amount of support payments with CRA as soon as you have a written agreement or have received a court order.
#3: Child Support
Were your child support payments made under a written agreement or court order after April 1997? Generally, these are not taxable as income for the recipient, or deductible from income for the payer.
According to CRA, If your written agreement or court order was made before May 1997, support payments for a child are taxable to the recipient and deductible by the payer unless any of the following four situations applies:
- Changes to the amount of child support payments
- A new court order or written agreement with the same person
- The court order or written agreement specifies that payments will not be taxable or deductible
- Election for child support payments.
Learn more about each of these situations and the tax rules for court orders or written agreements made before May 1997/after April 1997 in CRA’s Publication P102, Support Payments: https://www.canada.ca/content/dam/cra-arc/formspubs/pub/p102/p102-17e.pdf
#4: Child Benefits
According to CRA: “After the breakdown of a marriage or common-law relationship, the net income of each former spouse/partner is used to determine each of their entitlement to receive the Canada Child Tax Benefit and GST/HST credit.
Here’s a little more information on the Canada Child Tax Benefit:
Canada Child Tax Benefit:
The Canada child benefit (CCB) is a non-taxable amount paid monthly to help eligible families with the cost of raising children under 18 years of age. The CCB may also include an additional amount for the child disability benefit.
Here are the eligibility conditions, according to CRA:
- You must live with the child, and the child must be under 18 years old.
- You must be the person primarily responsible for the care and upbringing of the child.
- You must be a resident of Canada for tax purposes.
- You or your spouse or common-law partner must be:
- A Canadian citizen;
- A permanent resident
- A protected person
- A temporary resident
- An Indian within the meaning of the Indian Act.
Here are some more resources for you to check out and learn more about the eligibility requirements:
Pondering about your pensions? Here’s what CRA has to say:
“At the end of a marriage or common-law partnership a pension beneficiary may transfer (roll over) all or part of current or future pension benefits to the other spouse/partner as part of a settlement without this being taxed as a withdrawal of all the pension benefits.”
What about credit splitting?
“A spouse/partner has a right to ask for a split of the other spouse/partner’s CPP credits after a relationship breaks down. This right cannot be negotiated away except in British Columbia, Alberta, Saskatchewan, and Québec. In those four provinces, separating or divorcing spouses/partners can agree NOT to split CPP credits in a separation agreement or the right to the CPP credit split can be removed by a court order.”
Now, there ARE minimum requirement for CPP credit splitting, so if you’re interested in learning more, check out the “Splitting your pension credits” section of the Public Pensions report:
Still feeling overwhelmed? Divorces and separations can bring a multitude of questions that you need questions to. We get it.
We’ve handled some of the most complex family law cases, and we can advise you on how best to proceed with family law matters.
If you have an issue or question regarding a family law matter, we would be glad to assist you. You may contact us by telephone at 613-569-9500 or by email at firstname.lastname@example.org or email@example.com.