Filing Taxes When You Are Divorced or Separated in Canada
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You may be considered separated by family law even if you live in the same household. However, the income tax act says that you are only considered separated if you start living separately and apart from your spouse or common-law partner due to relationship difficulties. If your relationship is on the rocks, this blog post will shed light on what you need to know before filing your taxes if you’re divorced or separated.
Filing Taxes When You Are Divorced or Separated in Canada
1 – Tax Deductions vs. Tax Credits
The best strategy for filing taxes for divorced or separated individuals is the same one you should use when you’re single. This involves using tax deductions instead of tax credits. The difference is that while tax deductions are equal to your income, tax credits are equal to a certain percentage of your income.Tax deductions reduce your income before you have to pay taxes. They are claimed by completing Schedule 1 of your tax return. This can make a significant difference for physical or mental disabilities as well as for support payments you made to your former spouse or common-law partner.Tax credits reduce the taxes you owe. They are claimed by completing Schedule 1 of your tax return. They are calculated by multiplying the total of the credits by the lowest tax rate that applies to your net income.
2 – Canada Child Benefit
If you have children under 18, the Canada Child Benefit reduces the taxes you owe. However, you must have an adjusted family net income of less than $45,000 in order to receive it. To get the Canada Child Benefit, you must have a social insurance number and file your taxes electronically.
3 – Spousal Support Payments
Spousal or partner support payments are taxable. The person who pays the support can deduct it from his or her income, while the person who receives the support has to report it as income.
4 – Child Support Payments
Child support payments are not taxable. However, the person who receives the support must report it as income. The person who pays the support may deduct it from his or her income.
5 – Self-Employment Income
If you receive income from your own business or a partnership, you will have to pay self-employment tax (also known as the “labour source deduction”). This percentage is 12% of the income you earn up to the maximum pensionable earnings during the year. This amount is deducted from the income taxes you owe.
6 – Child Care Expenses
If you have children under 18 and paid child care expenses, you may be eligible to claim the child care deduction. The amount you spend per child is limited to $8,000.If you are a single parent, you can still claim the child care deduction if you earn under $25,000. However, your claim will be reduced for every dollar of income above this threshold.The child care expense deduction is not available if you were self-employed, worked as a public officer, registered Indian or are a non-resident of Canada.
Conclusion
If you have been divorced or separated from your spouse or common-law partner, filing your taxes this year can be a bit complicated. However, you can use the information in this post to help you file your taxes successfully, avoiding any penalty for filing late, paying taxes you don’t need to or having your income tax refund delayed.Should you need Calgary divorce lawyers, contact Alberta Divorce Finances. Let us help you understand your finances today!
