Divorce has significant tax implications that, if not addressed, create unexpected liabilities for both parties.
Dividing RRSPs
RRSP and RRIF assets can transfer between spouses tax-free as part of a legal separation agreement — the transfer must go directly between RRSPs. If funds are withdrawn first, the full amount is taxable to the withdrawing spouse.
Matrimonial Home and Capital Gains
Both registered owners must designate the property as principal residence for their ownership years to avoid unnecessary capital gains tax. This is frequently missed in divorce proceedings.
Support Payments Tax Treatment
- Child support: Not deductible by payer; not taxable to recipient
- Spousal support (periodic): Deductible by payer; taxable income for recipient — under written agreement or court order
- Lump-sum support: Generally not deductible and not taxable
Update Benefits Immediately
Notify CRA and Revenu Québec of separation immediately. This affects Canada Child Benefit, GST/HST credit, Solidarity Tax Credit, and withholding amounts. Delayed notification causes overpayments requiring repayment.