Divorcing couples must equalize the assets they take from their marriage. Being aware of the tax implications of asset division in Toronto allows a couple to make strategic decisions that allow them to keep more of their wealth.
Working with a well-versed property division lawyer with substantial expertise in tax matters is essential. The diligent lawyers at The Riley Divorce & Family Law Firm have years of experience helping people find favorable resolutions to asset division matters while minimizing tax consequences.
Even though you must be separated for at least one year to apply for a divorce, the Canada Revenue Agency (CRA) requires an earlier notification of your change in status. You must inform the CRA of your separation by the last day of the month following the change. Be sure to notify them of any change in your banking information at the same time so that checks will be direct deposited to the correct account.
For family law purposes, you could share a home with your spouse and be separated if you occupy separate spaces, do not have sexual relations, and you hold yourself out to friends and family as separated. The CRA requires your financial lives to be separate, which could be challenging if you occupy the same home and share living expenses. Speak with a practiced lawyer from our Toronto firm for pointers on establishing an asset separation that will satisfy CRA while occupying a home with your estranged spouse.
Asset division involves equalizing the value of each spouse’s property from the marriage. This is often accomplished in practice by transferring property between the spouses. In general, there are no immediate tax implications when spouses transfer title in property to each other to settle a divorce.
If you must sell property to settle the divorce, both spouses can usually avoid paying capital gains on the marital home by claiming the principal residence exemption. However, capital gains will be payable upon the sale of a cottage, investment property, or other property that has not been used as your residence. The value attributed to property for family law purposes must include any potential tax liability. A Toronto lawyer could advise you about the tax implications of any transfer of real estate assets.
When you and your spouse own a business together, deciding how to divide the business can be challenging. It is essential to make this decision a priority. Potential advantages exist when a couple divides a business while they are still together for tax purposes. These are called butterfly transactions and allow a couple to divide one business into two without income tax repercussions.
Income splitting allows married couples to reduce the overall tax liability of their household by distributing some of the income to the lower-earning spouse. Couples who use this procedure must understand that they cannot split their income once they live separately and must factor the impact on their respective tax liabilities into any settlement. Similarly, spousal attribution ceases to be effective when a couple divorces.
Couples who did not qualify for the Ontario harmonized sales tax (HST) rebates may qualify as single people. Parents who provide the primary residence for children receive the Canada Child Payment (CCP) and may be able to claim a child as a dependent on their income tax return. Spousal support under a settlement agreement or court order is taxable to the recipient and deductible for the payor. A Toronto lawyer will analyze the impact of all these factors when negotiating an asset division settlement.
Financial anxiety is common when divorcing. To avoid unpleasant surprises, it is essential to work with a knowledgeable lawyer who has a sophisticated grasp of the tax implications of asset division in Toronto.
The tenacious lawyers at The Riley Divorce & Family Law Firm have the knowledge and skills to craft a property division settlement that takes advantage of every opportunity for favorable tax treatment. Contact us at any time to schedule a consultation.
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