By Bronwen Bruch
Financial Professionals on a Collaborative Team provide expertise around the financial ramifications of separation.
Since we are approaching tax time, I thought I would provide you with some tax tips.
1. Spousal support and your pay cheque: If you are employed and you make spousal support payments, you can ask the Canada Revenue Agency (CRA) to authorize the reduction of the amount of income tax that your employer is deducting from your pay. Instead of waiting until April of next year for the government to send you a refund cheque, you can have a significantly higher monthly net pay now. Send a completed Form T1213, Request to Reduce Tax Deductions at Source, to you tax services office.
2. Shared Custody and claiming your children on your income tax return: You may have heard that if you are the payor of child support you are not entitled to claim the Amount for Eligible Dependent (or the old Equivalent to Spouse credit). This is sometimes true. However, when there is shared custody and both spouses have sources of income, it may not be the case. This credit could provide you with a refund of over $2,000 each year, so it would be in your best interests to discuss this with a Financial Divorce Specialist. And if you find out that you are entitled to claim the Amount for Eligible Dependent for one of your children, you may also be able to claim the Child Amount.
3. Tax implications when separating spouses divide their assets: Separating spouses go through a process of dividing their assets. Listing the values of each of their assets is just the first step int he process. They also need to take into consideration the tax that would need to be paid if the asset were sold. For instance, if one spouse kept a house worth $400,000, this would not be equivalent to the other spouse keeping the RRSP’s worth $400,000. Why? Because when the RRSP’s are withdrawn, tax has to be paid on them, so in essence, they are worth $400,000 less taxes. Since taxes are not paid when the house is sold, the house is actually worth more than the RRSP’s. And to complicate things more, there is the question of what tax rate should be used on the RRSP’s? There are many more questions around dividing investments or pensions and the tax implications. Again, a Financial Divorce Specialist could guide you through this process.
Separating clients are served very well when they decide to negotiate a separation agreement the “Collaborative” way. Collaborative Family Lawyers know the law, and are trained to advocate for their client with a collaborative approach. Family professionals are called upon for their expertise around parenting plans, and Financial professionals are called upon for their expertise around separation finances. Collaborative Professionals feel that 3 heads are better than one, and the best part is that the couple are not paying 3 times the cost. It will often be less than the alternative. Each member of the Collaborative Team will take on the pieces that they have expertise in. And the ultimate goals is that the couple and the collaborative professionals will create a quality separation agreement that will serve the couple well in their future separate lives.
Brownwen Bruch, BMath, CMA, FDS
Certified Management Accountant
Financial Divorce Specialist
Financial Family Mediator
THE TAX MANAGEMENT CENTRE
14-2530 Sixth Line, Oakville, ON L6H 6W5
T: 905-257-6528 F: 905-257-4221
bbruch@taxmanagementcentre.com
www.taxmanagementcrentre.com