Divorce and separation are painful life events, and it’s natural to want to distance yourself from the experience – and your ex — for a while. But when it comes to your taxes the fastest route is always getting it right the first time, and that means you will have to communicate and cooperate with your ex one last time. It’s not quite over till all those returns are filed.
It’s over now, but it wasn’t then
The source of all this post-relationship interaction is the fact that while you may be single when you’re preparing the return, you may still have been considered together for that return. In fact settling on dates is the first step in this process.
The date of separation
If you indicate on your tax return that you separated or divorced in the year, there’s a spot where you’re going to enter the actual date. To avoid issues and having to clarify with the Canada Revenue Agency (CRA) later, you and your partner should both agree on that date.
This is a situation where a divorce can be simpler than separation, because a divorce is a legal agreement that includes a date you can both refer to. But separation can happen with or without a legal document, and in the latter case it’s not always obvious when the split happened. What if you broke up but had to share a home for an additional couple of months while you looked for other accommodations? What if you began to live separately not because you broke up, but because one of you had to move for work, and later it evolved into a dissolution of the relationship? When are you separated, vs just living apart for a while?
CRA actually has a definition for times like these. According to them, you become separated when the following conditions are met:
- You are no longer living together; and
- this is due to a breakdown of the relationship; and
- you continued in that state for at least 90 days
Only after you’ve lived apart while being broken up, for at least 90 days is the separation considered to exist. At that point, the date of separation is retroactive to the start of the 90 day period. For example, if you split on December 15, the split doesn’t become classified as a separation until 90 days have passed, i.e. on March 15. At that point the separation is retroactive to December 15. It’s easy to see that, depending on when you start working on your taxes you can actually be in a situation where the separation hasn’t ‘taken’ yet according to CRA, but you’re being asked about your marital status as of December 31 of the prior year.
Make sure your ex also knows the rules about this so you can agree on that date if there’s any doubt. If one of you marks your status as of December 31 as common-law while the other says they were already separated, CRA will step in and require you to come to an agreement about this.
Who will claim the Eligible Dependent Amount
If you and your ex had a child together, one or both of you may be entitled to claim that child as an Eligible Dependent, which comes with a tax advantage, often saving thousands on the return. But if you’re both entitled, only one of you can actually make the claim for a given child.
If you both try to make the claim, CRA will disallow both and you’ll have to go back and come to an agreement in order for either of you to claim this amount.
The rules around who can and can’t claim a given child as an Eligible Dependent can be complex. Make sure to review CRA’s guidelines before taking this amount.
Splitting income from joint accounts
Back when you were married or common-law, you and your spouse may have had joint accounts that earned taxable income in the form of interest, dividends or capital gains. All those forms of income are reported on an income slip that may be addressed to both of you, but only one person’s social insurance number (SIN) is on the slip, and they’re the one most likely to receive the slip and to initially report it on their return.
But the person to whose SIN the slip is attached probably doesn’t want to declare all the income on their own return, since it was earned jointly. Both partners need to agree on the amount of income each is going to declare to make sure that between them the full amount (and no more than the full amount) has been declared.