By Chantal M. Cattermole and Sarah Tradewell
Separation can be taxing, both emotionally and financially, and is a time when surprises are generally unwelcome. Knowing the effects separation will have on your income tax return as well as the tax consequences for actions taken while in the process of separating (such as transferring assets) is essential to ensuring your economic stability.
In this article, we’ll explain the most common areas of separation and divorce that attract taxes, and how to take advantage of the opportunities available to minimize those taxes paid.
General information
For the purposes of tax considerations during separation or divorce, there are a few central definitions that are necessary to know:
(1) “Spouse” – Is a person you are legally married to.
(2) “Common-law Partner” – Is a person you are not legally married to, but have lived with in the same home for at least 12 months in a marriage-like relationship with no periods of separation spanning longer than 90 days. This designation can also be found in circumstances where your partner is the parent of your child (either by birth or adoption), or if they have custody of your child, and your child is wholly dependent on them for support.
If you are legally married, physically separating from your spouse will not end the marriage, you must obtain a legal divorce. If you are in a common-law relationship, separation will be established in the eyes of the Canada Revenue Agency (“CRA”) once you have been living separately and apart for 90 days.
