Life is full of changes, such as marriage, divorce, and the birth of a child are all major events. While these are personal events, they also have tax implications in Canada. Consult with a tax accountant Surrey to know how these events affect your taxes. This can help you plan ahead, stay compliant with the Canada Revenue Agency (CRA), and optimize tax benefits.
Marriage and Common-Law Partnerships
When you get married or enter into a common-law relationship, your tax filing situation changes immediately. In Canada, you must report your marital status to the CRA by the end of the month following the change. For example, if you get married in June, you should update your marital status by July 31.
Your marital status affects your eligibility for income-tested benefits like the GST/HST credit, Canada Child Benefit (CCB) and other provincial/territorial credits. These benefits are calculated on family net income, not individual income. If your spouse has a high income, your combined income may reduce or eliminate certain benefits. If one spouse earns much less, you may become eligible for higher benefit amounts.
Another advantage of being married or common-law is the ability to transfer credits and deductions between spouses. For example, unused tuition, disability or pension credits can be transferred to reduce the higher-earning partner’s tax liability. Spousal RRSP contributions can also provide tax planning opportunities if one partner has much lower expected retirement income.
Divorce or Separation
Divorce and separation are tough, but they also bring new financial complexities. Like marriage, you must inform the CRA of your change in marital status by the end of the month following your separation (once you’ve lived apart for at least 90 consecutive days).
One big tax consideration is child custody and support payments. Child support payments made under a written agreement or court order after May 1997 are not deductible for the payer and not taxable for the recipient. Spousal support payments are deductible for the payer and taxable for the recipient if made under a valid legal agreement. Parents who share custody can both receive the CCB, but the CRA will split the benefit based on the percentage of time each parent has custody. Only one parent can claim the “eligible dependent credit” for a child each year so parents should coordinate to avoid conflicts.
Property division and asset transfers during divorce can also have tax implications. For example, transferring investments between spouses can trigger capital gains unless specific rollover provisions apply. Get professional advice from a tax accountant Grande Prairie to avoid costly mistakes.
The Birth of a Child
The birth or adoption of a child is a joy, but it requires updating your tax profile. Parents should apply for the Canada Child Benefit (CCB), a monthly tax-free payment that helps with the cost of raising children under 18. The benefit amount is based on your adjusted family net income so keep your tax filings up to date.
In addition to the CCB, you may also be eligible for provincial or territorial child benefits and credits. These can really help with the cost of raising kids.
Parents can also open a Registered Education Savings Plan (RESP) for their child. While contributions are not tax-deductible, investment growth in the RESP is tax-deferred and withdrawals for educational purposes are taxed in the hands of the student who usually has little to no income. The government also provides matching grants of up to 20% through the Canada Education Savings Grant (CESG).
Maternity and parental benefits received through Employment Insurance (EI) are taxable income and you should plan accordingly. Keep track of deductions like childcare expenses, (allowable if both parents are working or studying) to reduce your overall taxable income.
Final Thoughts
Marriage, divorce and the birth of a child are more than just personal milestones, they are turning points that change your financial life. Each event affects how you file your taxes, how benefits are calculated and what deductions or credits you can claim.
Stay proactive and update your marital or parental status with the CRA to avoid overpayments or compliance issues. More importantly, tax planning during these life events can help you maximize credits, reduce tax liability and ensure financial stability for your family.
Because tax rules are complex, get professional advice from a tax accountant to have peace of mind and navigate these transitions with confidence.
