Why notify CRA on your Separation or Divorce

Separation and divorce affect your tax benefits

Anna Dunaeva DLegal Anna Dunaeva November 21, 2020

Separated or Divorced? – Let CRA Know

Did you know that your family status affects your personal income tax calculations? To avoid tax readjustments and maximize your tax benefits, it is essential to update the Canada Revenue Agency when you get separated or divorced. And here is why.

  

Why does your family status matter

In Canada, families with children are entitled to certain refundable and non-refundable tax credits based on their family net income. When you are married or live common law, family net income is calculated based on both parents’ net income. When the family relationship ends, each parent becomes an autonomous family, and CRA calculates each parent’s net family income separately. Because one parent’s net family income is often lower, this change may increase tax credits.

  

Can common-law parents claim tax benefits for their children on separation?

For Canada Revenue Agency, a common-law partner is someone who is living with you in a conjugal relationship for at least 12 continuous months; is a biological or adoptive parent of your child; or has custody and control of your child, if the child wholly dependent on your common-law spouse for support.

 

As a result, common-law and married parents are treated equally for income tax purposes.

 

When are parents considered separated for income tax purposes?  

For tax purposes, couples are considered separated when living apart for at least 90 days in a row. If the couple reconciles before the end of the 90 days, they are deemed not to have separated at all.

 

When to notify CRA on your separation or divorce?

Because you need to live separately from your spouse or common-law partner for 90 consecutive days to be recognized separated for tax income purposes, you can notify CRA of your changes only when this period ends. However, if you are divorcing, you should notify CRA without delays. The earlier CRA excludes the other parent from the calculation of your net family income, the sooner they recalculate your tax credits.

  

Can CRA audit your application?

Because refundable tax credits can be a substantial cash flow source, CRA scrutinizes whether the couple is really separated for tax purposes. A properly drafted separation agreement is a critical supporting document, but additional evidence can be required to confirm separate residences, custody arrangements, and parenting time of each parent. Parents also need to keep detailed records of child care expenses and set-off payments for some period of time after the child attains the age of majority. 

 

The content of this article is intended to provide a general guide to the subject matter and should not be considered as legal or other professional advice. To get detailed information regarding your specific circumstances, please discuss your situation with a lawyer or other professional.

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