As you gear up for tax season, it’s a good time to reflect on any major life changes you’ve recently experienced. Passing through the various stages of life may have an effect on your taxes and finances.
If you’re getting married, just got divorced, welcomed a new child into the family or dealt with the death of a loved one, you may need to take action to claim tax benefits and keep the Canada Revenue Agency (CRA) up-to-date about your situation.
Let the CRA know if you get married, enter into a common-law partnership, separate, divorce or were recently widowed. It’s important to inform the CRA about changes in your marital status to make sure you receive the right amount in benefits and credit payments. When your marital status changes, the CRA will recalculate your benefits and credits based on:
Your benefit payments will be adjusted the month after the month your status changes.
There are various ways to contact the CRA:
If you change your name, contact the CRA as soon as possible at 1-800-959-8281 so the agency can update your records.
Note: The CRA doesn’t accept name changes by email or over the Internet.
If you get divorced during the year and you’re entitled to Canada Child Benefit payments, the goods and services tax/harmonized sales tax (GST/HST) credit, or the working income tax benefit (WITB) advance payments, let the CRA know by the end of the month after the month of your divorce.
Note: If you separate from your spouse or you’re making or receiving support payments after a divorce, ask your tax advisor about the tax implications.
If you just got married, your tax situation will change in several ways:
Spouse or common-law partner amount. Did you make the majority of the household income this year? If at any time in the year you supported your spouse (or common-law partner) and his or her net income was less than $11,474 in 2016, you can claim up to that amount. If you also claimed the family caregiver amount, your spouse or common-law partner’s net income must be less than $13,595.
A spousal RRSP. Once married, you can contribute to an RRSP for your spouse to save for retirement. However, contributions you make to a spousal account reduce your RRSP deduction limit. The total amount you can deduct for contributions you make to your RRSP or your spouse’s or common-law partner’s RRSP cannot be more than your RRSP deduction limit. If you cannot contribute to your RRSP because of your age, you can still contribute to your spouse’s (or common-law partner’s) RRSP until the end of the year he or she turns 71. Ask your tax advisor how much you can contribute and deduct.
Want to name your spouse as a representative? You can authorize your spouse (or common-law partner) as your representative for income tax matters. Do this online using the My Account feature.
If you welcomed a new child into your family recently or you have a baby on the way, you may be entitled to credits and benefits (see the box at the bottom of this article). To qualify:
File an Automated Benefits Application (ABA). When registering a newborn’s birth, you can consent to use the ABA, which allows you to automatically apply for child tax benefits at the same time. If you give your consent on the provincial/territorial birth registration form, you don’t have to reapply for your child’s benefits by using the CRA online service or filing the form listed below.
Use the My Account feature. You can also apply to receive Canada child and family benefits by using the “apply for child benefits” service or by downloading and mailing Form RC66, Canada Child Benefits Application to your tax centre.
If you adopt a child under 18 years of age, you can also claim an amount for eligible expenses related to the adoption. The maximum 2016 amount for each child is $15,453.
The CRA reminds families of these considerations after a loved one has passed away.
A final tax return. The legal representative of a deceased individual must report all of the person’s income from January 1 of the year of death up to, and including, the date of death.
Ask your tax advisor for details on benefits. Deductions and credits can be claimed on the tax return for a deceased person. With certain strategies, such as splitting amounts between tax returns or claiming them against specific kinds of income, some of the deceased person’s taxes may be reduced or eliminated.
Payments for GST/HST. Sometimes, the deceased will receive a GST/HST credit payment after death. In this case, you should return the payment to the tax centre serving your area and notify the CRA of the date of death.
Don’t worry about installments. If an individual who must pay tax by installments dies during the year, installment payments due on or after the date of death don’t have to be made.
Dealing with the Canada Child Benefit. If a recipient of this benefit dies, call the CRA at 1-800-959-8281, or complete Form RC4111 Request for the Canada Revenue Agency to Update Records as soon as possible to report the date of death. If the deceased person’s spouse (or common-law partner) is the child’s parent, the CRA will usually transfer the payments to that individual. If anyone other than the parent is now primarily responsible for the child, that person must apply for the child’s benefits. If the deceased is an eligible child, the parents’ entitlement to the benefit stops the month after the date of death.
Deemed disposition of property. The tax treatment of capital property is complex. Consult your tax advisor for information.
As you can see, major life events can have an impact on your taxes so discuss them thoroughly with your tax advisor. In addition, keep in mind that changes in your financial situation or your family structure should also be triggers for reviewing your estate plan. Marriages, divorces, births and deaths are just some of the reasons why you may want to update your will.
Child and Family Benefits
Here’s a brief explanation of eight tax and financial benefits available to families:
Canada Child Tax Benefit (CCTB) and Universal Child Care Benefit. These benefits were replaced by the tax-free Canada Child Benefit as of July 1, 2016. Talk with your tax advisor, as it’s possible you qualify for the replaced benefits for previous year. The CRA uses information from your income tax and benefit return to calculate how much your CCB payments will be. To get the CCB, you have to file your return every year, even if you didn’t have income during the year. If you have a spouse or common-law partner, he or she also has to file a return every year.
GST/HST credit. Low or modest-income families can receive this tax-free quarterly payment to offset some GST/HST. To receive it, they must file income tax and benefit returns every year, even if they have no income to declare.
Provincial and territorial benefits. Most provinces and territories have child and family benefit and credit programs that come with the CCTB and GST/HST credit. Ask your tax advisor about yours.
Working income tax benefit. Working low-income families can claim this refundable tax credit. Your tax advisor can explain the eligibility criteria.
Disability tax benefits for family members. Canada provides tax credits and benefits for adults and children under the age of 18 who meet certain conditions. Ask your tax advisor for details.
Registered Education Savings Plan (RESP). An RESP is a contract between you and a promoter that allows you to make contributions toward future education expenses of a named beneficiary of the plan. Generally, if you change beneficiaries, the CRA treats the contributions for the former beneficiary as if they had been made for the new beneficiary on the date they were originally made. If the new beneficiary already has an RESP, this may create an excess contribution. There are exceptions to this rule, so talk with your advisor.