If you are a child support or spousal support payer or recipient, as we approach tax season you are likely wondering what the implications of your support payments are. If you are, this post is for you! It is important to keep in mind while you are reading this post that its purpose is informational only. It is for generally purposes, and does not consist of legal advice. It is also important to note that the law frequently changes, and even though this is the state of the law at the time it was written, it may not be current as you are reading it. If you require legal advice please contact Mosher Chedore to talk to one of our skilled lawyers.
It used to be that both child support and spousal support payments had tax implications for the payer and recipient. Payers were able to claim the amounts paid as a deduction, and recipients were required to claim the payments as income. However, there was a change in the Income Tax Act in May of 1997. Therefore if you have an unchanged order from prior to May 1997, and have not consented to a change, then this is still how your support payments are treated by CRA.
If you have an order after May 1997, a pre-May 1997 order that has been changed since May 1997, or you have consented to following the new tax implications with your pre-May 1997 order, CRA treats child support and child support payments differently. Spousal support payments are still claimed as a deduction for the payers, and claimed as income by the recipient, but child support is claimed by neither. Payers are not permitted to claim the deduction, and recipients do not have to claim them as income. These tax implications will have an impact on the actual cost and benefit of support payments, and should be considered when discussing support. Furthermore, it is possible to claim some of your legal fees used to obtain support. A support payer cannot claim any legal fees, but a support recipient may claim the legal fees expended in collecting late support payments, establishing the amount of support payments, trying to get an increase in support payments as tax deductible legal fees. Unfortunately legal fees for obtaining a divorce or establishing a custody or access arrangement are not tax deductible.
Those who have married or divorced may want to consider making a new Will.
Unless specifically contemplated in the Will, a previously made Will is automatically revoked upon marriage. The rationale behind this is that a deceased person is expected to provide for his or her spouse and issue, and the effect is that if no new Will is made, the deceased’s spouse and issue will be entitled to the estate due to intestate succession. To avoid an intestacy, and to ensure that your estate is distributed according to your wishes, a new Will should be executed after marriage.
A Will is not revoked, however, upon the dissolution of marriage. A testamentary gift to a spouse is assumed to refer to the person to whom the testator was married when the Will was made, unless it can be proved that a future spouse was intended. If a Will leaving a gift to a spouse is not revoked after dissolution of the marriage, or a new Will is not made, then a previous spouse may still inherit the estate. It is important in these situations to consider making a new Will to remove any gifts to previous spouses and to specify the replacing beneficiaries.
September 10, 2018
A. It is not uncommon for aging parents to resist the preparation of a Power of Attorney because they often associate this with losing control of their independence. As you know this is not the case, however, it is often difficult to convey this to the aging parent. It is almost assured that at one point or another a Power of Attorney will be required for hospital or nursing home care or some other need. When (and if) this occurs a Power of Attorney, with health care provisions, will be required. In the absence of a Power of Attorney you and your siblings would be required to make an Application to the Courts for the appointment of a Committee (guardian), in order to make decisions on behalf of your mother. The legal cost of a Power of Attorney is only a small fraction of the legal cost for a Court appointed Committee and the benefits to your mother are essentially the same. In addition to cost, the time required to have a Committee appointed can be rather lengthy which can cause a great inconvenience for your family since it is usually being sought at a time when decisions need to be made regarding a person’s personal care and finances.
Perhaps the most significant advantage of a Power of Attorney is that your mother can determine for herself who is to make her personal and financial decisions as opposed to having a Court decide which family member(s) will make those decisions.
It may be important to your mother to know that she does not have to give the Power of Attorney to her Attorney until it is required. It has been our experience that most Donors wish to leave their Power of Attorney in safe keeping with us, together with a Letter of Direction that we release it to their Attorney upon their (the Donor’s) direction, or upon receiving medical advice stating that the Donor is unable to give this direction.
We would recommend that you discuss this matter with your mother again, or suggest that she discuss it with us.
March 28, 2017
It is a long standing practice for self employed persons with a small business corporation to “sprinkle” income within that corporation amongst family members. This is normally done by issuing difference classes of the corporation shares to each spouse, particularly where the corporation’s business is the source of family income. The spouse who is not involved in the day to day operations is given a class of shares in recognition of their contribution to the family while the other spouse works within the corporate structure. By setting up a corporation in this manner, the business income can be attributed to either spouse depending on their circumstances at the time of distribution of that income. Normally, this would be accomplished through a declaration of dividends by the corporation on shares held by one spouse or the other.
On March 22, 2017, the Federal Budget indicated that this was a practice which would be examined and which could, in the future, be eliminated. Such tax planning processes are generally considered vital to retirement planning for self employed individuals. If you currently have your small business ownership structured in this manner, we would urge you to pay close attention to deliberations by the Government on this issue in the coming weeks.
UPDATE: According to draft rules released in December 2017, the type of corporation, the age of the shareholder, the involvement of the shareholder in the business, the voting rights and percentage of ownership of the shareholder can determine whether the sprinkling of dividends is available.
In addition to these new rules, as a result of the Federal Government Budget 2018, the amount of passive income within a Canadian Controlled Private Corporation (CCPC) could limit the available small business deduction. Additional to this, the amount of passive income eligible for the small business tax rate will also be reduced. The dividend tax credit received from eligible vs non-eligible dividends is to be revised such that a CCPC will only receive a refundable dividend tax on hand (known as a RDTOH) refund only when the dividend declared is non-eligible.
On October 3, 2016, the Federal Government announced new rules that will require you to report the sale of your personal residence on your income tax return commencing with the filing of the 2016 return. This is a departure from past practice where the sale of a personal residence did not require reporting. There is still no requirement to pay capital gains tax on the sale of a personal residence however if you fail to report it, the penalties can be rather steep. The transfer of a personal residence without an actual sale (such as changing it from your home to a rental property or business property) will also need to be reported.
June 26, 2014
We are often asked if will “kits” (or the boxed wills that you can purchase from a stationary store) are valid and the answer is yes provided they are completed in the manner required by the <em>Wills Act</em>, RSNB 1973, c. W-9.
The difficulty is that most people have no idea what the law requires and therefore many of the wills completed with these types of kits are done incorrectly. One example is that a beneficiary generally cannot be a witness to a will and there are specific rules about how a will is signed and witnessed that must be followed. If these rules are not followed, the result is that these wills are not valid and the person dies intestate, without any of their wishes being followed after their death. Often times, the intention in purchasing one of these kits is to save money, but if there is a problem in the way it has been completed there are often much more expensive problems to deal with in the end.
A simple will is not expensive. A lawyer can give you specific legal advice that is particular to your individual needs, and you can rest assured that your last wishes will be followed after your death. Any of our lawyers would be pleased to meet with you to discuss your will and any other of your estate planning needs.
Given the unprecedented length and cold weather that this winter has brought us, many people may be struggling to pay their heating bills. The Province provides some assistance by way of an emergency fuel benefit of up to $550.
Examples of emergency situations (taken from the government website):
• a high heating bill due to the cold, which means that you are not able to pay your rent or mortgage;
• having to choose between feeding your family and paying your winter heating bill; or
• an illness resulting in unexpected high medical costs, which have made it hard to pay your heating bill.
If you’re encountering difficulty paying your heating bill this winter, you can find more information, including how the payment is calculated, on the Province’s website by clicking here
December 30, 2013
Clients often consult with us on whether being in a common-law relationship for a certain length of time means that they have the same rights and obligations as married persons. This is a common misconception as, in fact, particularly when it comes to property, there can be significant differences in the way the law applies to married people and the way it applies to common-law partners. For example, the Marital Property Act in New Brunswick governs the division of property between married persons but it does not apply to common-law spouses, no matter how long they cohabitate.
A common-law spouse who is seeking an interest in property held by the other spouse when their relationship breaks down must demonstrate that the other spouse has been unjustly enriched. He or she must prove they contributed to the acquisition, maintenance, or improvement of the respective property in some manner. The contribution might be financial or might be by way of contributions made toward the upkeep of the parties’ home or childcare.
Differing levels of contribution will therefore result in a different level of entitlement to a share in the property that is in the name of the other party. Some of the factors that will be considered include the length of the relationship and the roles that the parties’ assumed during the relationship. The final conclusion with regards to entitlement will therefore vary in each case.
Our family law lawyers can help you at the beginning of your common-law relationship to create a document to pre-determine ownership upon the breakdown of the relationship. We can also assist in determining the rights and obligations specific to your situation upon the breakdown of your common-law relationship.
You may be having renovations done on your home for which you are being charged Harmonized Sales Tax (HST). You may want to ensure that the person who is collecting HST is actually registered with the Canada Revenue Agency to do so before you pay the bill. The link below will take you to the Canada Revenue Agency’s database of HST registrants and allow you to search and confirm that you should be paying HST to that service provider.
Canada Revenue Agency’s database:
If you have any questions or this or other issues relating to your home, our lawyers can assist you in many ways. Please do not hesitate to contact our office should you have any questions or concerns.