If you are going through a divorce in Ontario, you may want guidance on what to expect—and for many people,...
If you are getting divorced and your soon-to-be ex-spouse lives in a country that has a tax treaty with Canada, such as the United States, you may be concerned about double taxation. Taking steps to understand your obligations can help you avoid costly mistakes.
In this blog, our experienced divorce lawyers at The Riley Divorce & Family Law Firm discuss tax treaties and how they affect cross-border divorce cases. We are here to help you feel more confident about your options and, where possible, prevent you from overpaying on your taxes.
The purpose of a tax treaty is to ensure the same income is not taxed by multiple countries. This law is a crucial factor when considering spousal and child support payments, pensions, and foreign property division. If a double taxation agreement exists between Canada and the country where your ex-spouse resides, we could help determine which country has the authority to tax the relevant assets after divorce.
Recent changes to the Canadian and U.S. tax treaties affect how spousal support is managed. If you and your spouse divorced after 2018, those payments are no longer taxable for the U.S. recipient. Likewise, the United States does not allow the payer to deduct these funds. This is good news for divorced Canadians who receive a spousal support payment from a U.S. resident, as that money is no longer taxable in either country, making it a lot easier to avoid double taxation.
Child support payments are also tax-exempt for the U.S. recipient. In addition, under the terms of this tax treaty, they are not deductible by the Canadian payer in cross-border divorces.
Tax treaties could also help you and your divorce lawyer address capital gains when dividing foreign property, such as a home, and avoid being taxed in multiple countries. In Canada, it is common to tax-defer assets when transferring them between spouses. Your lawyer could ensure that the timing is aligned to minimize tax exposure and support a more predictable outcome in your case.
Tax treaties also give countries the authority to determine which one has the right to tax your pension. This is a relatively common issue for couples with pension benefits in foreign countries. To avoid double taxation, it is essential to consider these treaties when splitting retirement funds in a divorce.
If both countries claim you as a taxpayer, a treaty could be used as a tiebreaker. By establishing issues such as permanent residency and other vital interests, the treaty could help resolve dual residency conflicts.
Divorce is a stressful time—emotionally and financially—and the last thing you need is to face unnecessary double taxes. Our experienced divorce lawyers at The Riley Divorce & Family Law Firm understand the complexities of tax treaties and divorce, and how they result in confusion and double taxation issues.
Every case is unique, and we are here to support you and help you achieve the best possible outcome. With offices in Toronto and Ottawa, we are available 24 hours a day. Call us today to get answers to your questions.
The Riley Divorce & Family Law Firm
