Not only signifying a drastic change to someone’s personal life, getting married or divorced can lead to significant consequences financially. Understanding these consequences is important for any couple who are considering marrying, or planning to separate.
Hiring bookkeeping services in Surrey can help couples work their way through the often complex financial world of taxes, and find solutions with the least tax ramifications. To find out more about what might happen to your taxes should you decide to get married or divorced, here is a brief guide:
The tax consequences of marriage
Once married, the tax system in Canada classes each spouse as a separate entity, and unlike in many other countries, doesn’t give them the right to file their taxes jointly. That said, there are some tax benefits and considerations that married couples can take advantage of:
1. Spousal transfers and credits
If you haven’t used your disability or age tax credit, or your tuition amount, you may be able to transfer these to your spouse.
2. Spousal RRSP contributions
One method that’s potentially beneficial for dividing up an income, is to make contributions to an RRSP, or registered Retirement Savings Plan, and could reduce a family’s tax burden.
Changes to your status
Should your marital status change at any time, you must inform the CRA so that you can be sure of getting the right benefits and credits.
The tax consequences of divorce
Often having a significant impact on an individual’s tax obligations, here are some alterations that are likely to take place following a divorce:
1. Child support and alimony
For the person making child support payments, they are non-deductible, and for the person receiving them, they are non-taxable. However, in the case of an individual paying spousal support, these are deductible, while for the person receiving them, they must be included as income, provided specific conditions are met.
In terms of capital gains or losses, there may be tax consequences regarding asset distribution for a divorced couple.
Certain expenses incurred by a taxpayer related to legal and accounting costs while collecting or setting up alimony or spousal support entitlement, may be eligible for deductions.
For divorce settlements, to prevent undue taxes being incurred, strict tax regulations must be adhered to when dividing pensions or transferring RRSPs.
How to strategically plan your taxes for marriage and divorce
When planning to marry someone, it’s important to put into place some effective tax strategies to make the most of joint incomes and tax savings.
When planning to divorce someone, it’s best to set up a consultation with a personal tax accountant in Surrey before the process gets underway. This way you can be clear on the tax implications of your decision, and put together a plan for minimizing your tax obligations.
Getting married or divorced is a big decision for most, and while you may not feel like talking taxes at a time like this, it’s imperative that you at least consider the tax implications, so that you can better understand and manage your finances.
To relieve the stress often associated with these two major life events, seek professional counsel to better protect your finances.