Once you are separated or divorced, your tax filing, personal credits, support-payment reporting, and benefit entitlements may change. This article outlines what may be different and what you should review.
Divorce or separation can significantly affect your personal tax situation. Regardless of how long you were married, you may need to update your marital status with the Canada Revenue Agency, review your eligibility for personal tax credits, and understand how support payments, dependant claims, and benefit payments may be affected.
The process can also involve gathering financial records, reviewing a court order or written agreement, dealing with co-parenting arrangements, and understanding how the rules apply to your children. When it comes to taxes, there are several important items to review after a separation or divorce.
For CRA purposes, marital status affects more than your annual tax return. It can also affect income-tested benefits and credits, including the Canada Child Benefit, GST/HST credit, Canada Carbon Rebate, and related provincial or territorial benefits. The CRA may recalculate your benefits and credits based on your updated marital status and adjusted family net income.
Here’s how a divorce or separation may affect your tax return in Canada.
When Does the CRA Consider You Separated or Divorced?
For tax purposes, the CRA generally considers you separated once you have lived separate and apart for at least 90 days because of a breakdown in the relationship. Once the 90-day period is met, the effective date of your separated status is the day you started living apart.
Being divorced is different. The CRA considers you divorced once you are legally divorced from your former spouse. Shared parenting or ongoing financial obligations do not automatically prevent the CRA from recognizing a separation, but they can affect benefits, credits, support-payment treatment, and dependant claims.
Update Your Marital Status with the CRA
You must tell the CRA when your marital status changes, including if you become separated for more than 90 days or become legally divorced. In general, the CRA must be notified by the end of the month after the month your marital status changed. However, if you separate, you should wait until you have been separated for at least 90 days before updating your status.
Do not wait until tax filing season, as the change may affect Canada child benefit payments, GST/HST credit, Canada Carbon Rebate, and other income-tested benefits or credits.
Claiming a Child as an Eligible Dependant
You may be able to claim the amount for an eligible dependant if, at some point in the year, you supported an eligible dependant, did not claim the spouse or common-law partner amount, and lived with the dependant in a home you maintained.
For a child, custody alone does not automatically determine who can claim the amount. If one parent is required to pay child support for that child and the other parent is not, the parent who pays child support generally cannot claim the amount for that child. Only the parent who does not pay child support can generally claim the amount, provided the other CRA requirements are met.
In shared-custody situations where both parents are required under a court order or written agreement to pay child support, one parent may be able to claim the amount if both parents agree. If they cannot agree, neither parent can claim it for that child. The dependant’s net income may also reduce or eliminate the claim.
Support Payments and Taxes
Support payments can affect your tax return, but the tax treatment depends on the type of support and whether the payments are made under a court order or a written agreement. If there is no court order or written agreement, the payments are generally not subject to the CRA’s support-payment tax rules.
Generally, child support payments made under a court order or written agreement dated after April 1997 are not taxable to the recipient and are not deductible by the payer.
Spousal support payments are generally taxable to the recipient and deductible by the payer if they meet CRA’s requirements, including being paid under a court order or written agreement and being clearly identified as support for the current or former spouse or common-law partner.
If an agreement includes both child support and spousal support, child support is generally given priority. Overdue child support may affect whether spousal support can be deducted, so it is important to review the terms of the agreement carefully before filing.
Legal Fees After Separation or Divorce
Legal fees for separating, divorcing, or establishing child custody or visitation arrangements are generally not deductible. However, some legal or accounting fees related to support payments may be deductible, depending on the circumstances. For example, CRA may allow certain fees related to collecting support, establishing a right to support, or addressing the tax treatment of child support. Review the specific CRA rules before claiming these expenses.
Review Your Benefits and Credits
After a separation or divorce, your benefits and credits may change because many CRA-administered payments are based on family income and marital status. This may include the Canada child benefit, GST/HST credit, Canada Carbon Rebate, and related provincial or territorial benefits. Updating your marital status helps ensure you receive the correct amount and avoid future repayment issues.
Speak with a Tax Professional
Divorce or separation can affect several areas of your tax return, including marital status, benefit payments, dependant claims, support payments, and certain legal fees. Because the rules depend on your court order, written agreement, parenting arrangement, and income, it is wise to speak with a qualified tax professional before filing.
If you need help understanding how separation or divorce may affect your tax return, contact us for guidance. Visit our blog for more articles, news, and updates about personal tax planning, small business accounting, CRA audits, and bookkeeping.