How will my divorce affect my taxes?
Frequently asked questions about divorce and taxes
When a couple decides to separate and file for a divorce, it can be overwhelming for both parties. One of the many aspects to consider is how it will affect your taxes.
These are a few of the most common tax questions asked in the divorce process and the answers that follow.
When does the government consider you separated?
- The CRA (Canada Revenue Agency) considers you separated when you live separate and apart from your spouse or common-law partner for 90 days or more due to a breakdown of the relationship
- Once you are separated for that time, the effective day of your separation is the day you started living apart
- For the child benefit, the CRA may only recognize you as being separated if you live in a separate households
When should you let the government know and how?
- If you meet the criteria for being separated according to the CRA within a given tax year, you will file your taxes that year as “separated”
- Once you finalize your divorce, CRA expects you to notify them by the end of the month following the month your divorce was finalized
- This can be done on the phone, online or by mail
- Going forward you will file your taxes as “divorced”
Will I be taxed on child support?
- If receiving child support, it is not taxable
- If paying child support, you cannot claim it as a deduction
Are legal fees tax deductible?
- Legal fees that were paid to obtain or collect child support are deductible
- Fees for preparing a separation agreement or division of assets are not
Will I be taxed on asset transfer?
- Capital property (most assets) can be transferred to the recipient spouse without tax consequences
- If transferring a home or a family cottage, important steps need to be taken to ensure you are not liable for capital gains tax
- Proper tax planning can help eliminate or reduce capital gains tax on the transfer of property like shares or rental properties
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