Post-Divorce Tax Season Survival Guide

March 18, 2024
Erika Holter

Article written by Erika Holter

Tax season can be a stressful time of year for Canadians. For those who have recently undergone a divorce, it may be even more daunting. Divorce brings significant changes, and taxes are no exception. If you're wondering how you can tackle taxes after divorce in Canada, dive into our seven-step guide to help you navigate this unchartered territory. 

Seven Steps to Help You Navigate Tax Season Post-Divorce

Following a divorce, taxes may not be top of mind. While navigating your new chapter, it could even be likely that this year's tax season came as quite a shock. In the following guide, learn how you can approach tax season post-divorce with clarity and peace of mind, allowing you to focus on building a brighter future for you and your family.

Step 1: Determine Your Filing Status

The first step in navigating taxes post-divorce is determining your filing status. Your filing status depends on your marital status as of December 31st of the tax year. If your divorce was finalized by this date, you'll typically file as single or head of household. If you're unsure which status applies to you, seek advice from a tax professional for personalized guidance.

Smiling man looking at document

Step 2: Gather all Necessary Documents

As with any tax filing, gathering the necessary documents is essential. This includes forms such as T4s, T5s, RRSP statements, and any relevant documents related to support payments, such as alimony or child support, as well as custody agreements. Organizing these documents early on will streamline the tax preparation process and ensure accuracy.

Step 3: Understand Support Payments

Alimony and child support payments can have tax implications in Canada. Alimony received is generally considered taxable income, while child support payments are not taxable for the recipient. However, it's crucial to understand the specifics of your situation and any agreements in place regarding support payments.

Step 4: Claiming Dependents

If you have children, determining who can claim them as dependents can be complex post-divorce. Generally, the custodial parent is entitled to claim the child as a dependent for tax purposes. However, custody agreements may specify otherwise. Review your custody agreement to determine who has the right to claim dependents, and if necessary, discuss this with your ex-spouse to avoid misunderstandings.

Step 5: Review Retirement Accounts and Property Division

During divorce proceedings, retirement accounts and property are often divided between spouses. Depending on how these assets are divided, there may be tax implications. Consult with a tax professional to understand any tax consequences related to the division of retirement accounts and property.

young woman with papers and calculator at home

Step 6: Explore Tax Credits and Deductions

In addition to the general tax exemptions and changes (here is a list of those changes for 2023), there are various tax credits and deductions available in Canada that may specifically benefit individuals post-divorce. For example, if you're a single parent with dependent children, you may qualify for the Canada Child Benefit or the Child Disability Benefit. Additionally, certain expenses related to divorce proceedings, such as legal fees, may be deductible. Explore all available tax credits and deductions to maximize your tax savings.

Step 7: Update Your Withholding

It's essential to review and update your withholding allowances after divorce to ensure the correct amount of taxes are withheld from your income. Failing to adjust your withholding could result in over or underpayment of taxes. Use the CRA's withholding calculator or consult with a tax professional to determine the appropriate withholding allowances for your new circumstances.

Seek Support Where Needed

While navigating taxes after divorce may seem daunting, you don't have to do it alone. If you find yourself getting overwhelmed, consider seeking assistance from a qualified tax professional or accountant who specializes in divorce-related tax issues. They can provide personalized guidance based on your specific situation and help you navigate any complexities that arise.

With the April 30th tax filing deadline coming fast, take a deep breath and appreciate that while taxes post-divorce may present new challenges, they are completely manageable with the right approach. Remember, support is always available, and you're not alone in this journey.