When you first realize your marriage is ending, who do you tell? The kids, your family and your friends, right? Who’s missing from that list? The CRA, of course.
The Canada Revenue Agency (CRA) wants to know who’s coming and going from your home, and they won’t even buy you a beer or let you cry on their shoulder.
You should inform them of any change in marital status, but in the case of a marital (including common-law) breakdown, wait until you’ve been separated for 90 days.
A lower household income should mean increased benefits such as a GST/HST credit child and provincial tax benefits, so there’s no financial benefit to wait. Here are a few tax issues that you’ll need to consider if you’re newly single.
What does “separated” mean?
It depends on who you ask. A divorce lawyer may tell you that you can be separated even if you live in the same dwelling — while you’re trying to sell the family home, for example.
But the CRA doesn’t see it that way; you must physically be living at a different address for at least three months to be considered separated.
Eligible Dependent Credit
This credit, also known as “equivalent to spouse,” can be claimed for one child by a single parent who lives with that dependent child. It can mean big tax savings—but note that only one parent can claim it per year and it can’t be split. You’re going to have to agree with your ex about who makes the claim, or the CRA says nobody gets it. Having it spelled out in your separation agreement will avoid disagreements or penalties every year.
Canada Child Benefit
The Canada Child Benefit (CCB) plan is a tax-free monthly payment for children under 18. The CCB will provide a maximum benefit of $6,400 per child under the age of six and $5,400 per child aged six to 17.
To be eligible for this credit, you must file your taxes every year, even if you have no income. The CRA uses your return to determine your benefit, which can also include provincial programs and child disability benefits.
If you have primary custody of your children, you should receive the full benefit; if you have a shared custody arrangement where the children live with both parents, then the CCB will be split, with each party receiving half. You must notify the CRA if there is a change in the custody of your children.
Legal and accounting fees
If you receive support payments, you may be able to claim some of your legal and accounting if they were incurred to arrange a support order. Your lawyer should supply you with a letter detailing this portion of your bill to submit with your taxes.
Note that you cannot claim fees for arranging a separation agreement, divorce, custody or visitation.
Claiming support payments
If you pay spousal and child support, you will put the total amount on line 220 of your tax return, but on line 230, you’ll use just the deductible part, i.e. spousal support.
If you receive support payments, you would put the total amount on line 156 of your tax return, but then break out the taxable part on line 128. Spousal support is taxable, but child support isn’t.
What if support isn’t paid in full?
If you only receive partial support payments, the child support portion is considered to be paid first.
Lump sum payments
If your ex-spouse finally makes a lump sum payment after a long period on non-payment, you’ll have to claim it the year you receive it. The exception to the rule is that if the amount is over $3,000, you can ask the CRA to tax it as if you had received it the previous years it was due.
Yes, there’s a form for that. Your former spouse should give you a Form T1198, Statement of Qualifying Retroactive Lump-Sum Payment, that will accompany your request for reassessment.
Deductions from your pay
If you make deductible support payments, consider asking your employer to reduce the amount of income tax deducted; alternately, if you receive taxable support, you may wish to have payroll deductions increased, so you won’t have a big bill at tax time.
Register your Agreement
Once you finally have a court order or separation agreement, you must register it with the CRA using Form T1158, Registration of Family Support Payments if spousal support payments are required. “Do not include your order or agreement with your return,” says the CRA. This does not apply if only child support is outlined.