Divorce and tax season in Ontario can be one of the most challenging times for couples going through the process. It’s not just the mental anguish that makes it so challenging; there are also financial and legal repercussions that come along with it. It’s a perfect storm of challenges. The filing of taxes in the province of Ontario is one of the most significant points of intersection between divorce and monetary matters. Being a family law and divorce firm based in Toronto, Ontario, we are familiar with the nuances of the divorce process and the tax laws in Ontario, and we are here to assist you in working through these challenges.
Tax Filing Status
When going through the process of getting a divorce, one of the first things you should think about is how you will file your taxes. Your filing status is determined by your marital status as of the last day of the tax year, December 31. You have the option of filing your taxes jointly or individually, depending on whether or not you were still married on December 31. If you were divorced or legally separated at the end of the year, you are required to file your taxes as a single person or as the head of your household.
There are a few advantages to filing your taxes as a married couple, including the potential for a reduced overall tax rate and the expansion of your eligibility for certain deductions and credits. On the other hand, this indicates that you and your ex-spouse are jointly liable for paying any back taxes that are owed, and you will need to come to an agreement over how to divide any returns. When you file your taxes separately, you and your partner each submit their own tax return, and you are only responsible for paying or receiving the amount of tax that is due to them individually.
Child Support and Spousal Support Payments
Another area in which divorce and tax intersect is that of payments such as child support and spousal support. Both parties are not entitled to a tax deduction for child support payments, and the recipient is not required to report them as taxable income. Spousal support payments, on the other hand, are deductible by the payer and subject to taxation by the recipient because they are considered taxable income.
It is essential to maintain precise records of any spousal support or child support payments made or received throughout the course of the tax year. If you are the one who is responsible for making spousal support payments, you need to be sure that you deduct such payments from your tax return. If you are the person receiving spousal support payments, you are required to include those payments as income on your tax return.
When a couple gets divorced, the division of their property might have repercussions regarding taxes for both sides. It is possible that you will be required to pay capital gains taxes if you sell a piece of property that was part of the divorce settlement and was given to you. If you employ a tax-free transfer method when you give property to your ex-spouse as part of the settlement, you may be able to avoid paying capital gains taxes on the money you make on the sale of the property.
During the divorce process, it is essential to consult with an experienced accountant or financial advisor in order to ascertain how any potential decisions on the division of property may affect taxes.
Child Tax Credits
If you are filing a tax return and you have children, you could qualify for certain tax benefits. The child tax credit may be claimed by either parent, provided that one of those parents claims the child as a dependent on their own tax return. You and the other parent can come to an agreement about who will claim the child as a dependent on their respective tax returns if you share custody of the child.
It is essential to maintain precise records of any and all costs associated with raising children, such as those incurred for child care and medical care, as these costs may also qualify for tax benefits.
Final Thoughts On Divorce and Tax Season In Ontario
Both divorce and tax time may be stressful and difficult times of the year. To ensure that you are aware of all of the tax ramifications of your divorce, it is vital to engage with an experienced family law divorce lawyer in Toronto. You may steer clear of any potential tax concerns and make sure that the divorce settlement you reach is fair and equitable for both parties if you take precautions and stay informed.
At Hussain Law, we have the knowledge and expertise to guide you through the process of getting a divorce and to assist you in navigating through any tax-related difficulties that may come up throughout the course of the divorce. We are here to assist you in reaching the most favourable outcome that is feasible.