Here comes tax season
again, and it’s time for Jack and Jill to pay the price for being respectful
and abiding Canadian citizens. It is
hard enough to disentangle income tax issues when the family unit is still whole,
imagine the complications that can arise when you have just separated and you
do not have a finalized separation agreement. Canada Child Tax Credits, Harmonized
Sales Tax Credits, Universal Child Care Benefits, Dependants Claims and
National Child Benefits are only a few of those complex issues that need to be
dealt with and Jack feels overwhelmed. To make things worst, his lack of “meaningful”
communication with Jill at this stage of their separation process is actually making
income tax filing a true headache.
If you were represented by
a family lawyer when you signed your final separation agreement, you should not
have to worry about future tax implications as your counsel should have
carefully assessed them and included specific provisions in the agreement to help
you determine which tax credits and benefits each of you is entitled to claim.
However if, like Jack, you do not have such an agreement, here are a few tax
principles that you absolutely need to be aware of:
1- Child support payments. These payments are not tax-deductible for the support payor and are not
included in the recipient’s income for tax purposes. Support Payors Beware: You cannot claim an income tax
deduction for the child support payments you made this past year.
2- Spousal support payments. These payments, however, are included in the income of the support
recipient and are deductible from the support payor’s income (unless the
support was paid in one lump sum in which case different rules apply). However, to be deductible the obligation to
pay spousal support must be confirmed in a written separation agreement or a
court order. While Revenue Canada will
recognize support payments made in the year preceding the execution of a
separation agreement in most circumstances, you do not want to take a chance
and you should confirm any spousal support obligations in a binding agreement
(even partial, even signed at the kitchen table) without delay. Spousal
Support Recipients Beware: You may need to pay income tax on the
money you have received from your ex this past year, so make sure you put some money
aside. For more information on this
topic you can visit the following Canada Revenue Agency link:
3- Shared custody arrangement. A shared custody arrangement (for tax purposes) means that each parent
spends an equal amount of time (or a near-equal amount of time) with the
children in any given year. In that case,
the rules can get real complicated. You can
obtain more information by visiting the following link on Canada Revenue Agency’s
website: http://www.cra-arc.gc.ca/bnfts/menu-eng.html. Share Custody Parents Beware: Do not
leave your money to the Taxman! Figuring out what tax credits and benefits you
are entitled to and for what period of time can be a complex task. You should consult with an accountant who will
help you breeze through that determination.
If spousal support payment is made all at once in one lump sum. How does the taxation rules differ ?
ReplyDeleteIf an obligation to pay spousal support is settled by the payment of one lump sum, Canadian taxation laws provides that there is no tax consequences (in other words, the lump sum is not considered income in the recepient's hands and cannot be deducted from the payor's income). Hope that helps.
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