Divorce and separation tax in Canada: a CPD course for CPAsGet the tax right
before the agreement is signed.
Spousal support deductibility, the spousal rollover and the principal residence designation are decided by the separation agreement. Learn the conditions, the 90-day rules and the drafting that keeps a property split tax-free.
Most Separation Files Reach the Accountant After the Agreement Is Signed
Roughly 40% of relationships in Canada end in separation or divorce, and each one has two parties who need tax advice.
By the time the file reaches you, the deductibility of support, the rollover of the house and the treatment of the company shares are usually already locked in by the wording of the agreement.
The calendar decides much of the rest: 12 months to form a common-law partnership, 90 days to end one.
The 90 days must be continuous and caused by a breakdown of the relationship. Couples can live separate and apart under the same roof.
You Advise Clients Going Through a Separation
Or legal counsel asks you for an asset list, a valuation or the tax effect of a proposed settlement.
Family Practitioners
Firms acting for both spouses, now facing a conflict of interest.
Support Payors and Recipients
Spousal and child support, third-party payments and arrears.
Couples Dividing Property
Homes, portfolios, RRSPs, RRIFs, FHSAs and CPP credits.
Owner-Managers
Splitting a private company or a corporate group between spouses.
Spousal support is deductible only if all six conditions are met:
One Missing Agreement, Two Taxable Outcomes
A married couple separates in 2016 without a written agreement. One keeps the house, the other buys a condo, and both sell in 2024. Spouses share one principal residence designation until divorce, so whoever designates first takes the exemption.
The House Gain Is Fully Sheltered
- House gain
- $800,000
- Condo gain sheltered
- 3 of 9 years
The Condo Gain Is Fully Sheltered
- Condo gain
- $400,000
- House gain sheltered
- 9 of 15 years
Each Spouse Designates Their Own Home
- House, separated years
- Designated
- Condo, separated years
- Designated
The designation rules themselves are covered in depth in our Principal Residence Exemption course.
After Two Hours, You Will Be Able To
- Fix the date of separation and the common-law status for tax purposes.
- Test spousal support against the six conditions for deductibility.
- Draft third-party payment terms that remain deductible.
- Use the spousal rollover, and know when to elect out.
- Protect both principal residence designations with the right agreement.
- Plan the division of a private company without triggering tax.
What the Seminar Covers
One two-hour recording that works through six topics in the order they arise on a file, from the date of separation to the credits and benefits that close it out.
Topic 1Date of Separation, Common-Law Status and the Conflict of Interest
Date of Separation, Common-Law Status and the Conflict of Interest
- Why acting for the family becomes a conflict on separation, and what the CPA Code requires to continue an engagement.
- Spouse versus common-law partner: the 12-month cohabitation test, the parent-of-a-child alternative, and the deeming rule that keeps a partnership alive after the split.
- The “separate and apart” test and the conjugal-relationship factors, including couples living apart under one roof.
- The 90-day rule, a reconciliation that resets the 12-month clock, and why living apart for other reasons does not count.
- Forms T1158 and RC65, and how the separation date drives support, rollovers, attribution and principal residence claims.
Topic 2Spousal Support Deductibility: The Six Conditions
Spousal Support Deductibility: The Six Conditions
- Child versus spousal support, pre-May 1997 agreements, and when deductibility is actually desirable.
- What counts as a written agreement or court order, including solicitors’ correspondence, and why email exchanges likely fall short.
- The test for an “allowance”, and the drafting failure that turns a global payment into non-deductible child support.
- The periodic-payment factors, when a lump sum still qualifies, and retroactive averaging on Form T1198.
- Prior payments validated under 56.1(3) and 60.1(3), and the one-year look-back limit.
Topic 3Third-Party Payments, Ordering Rules and Non-Resident Support
Third-Party Payments, Ordering Rules and Non-Resident Support
- The general rule in 60.1(1) and the specific rule in 60.1(2) and 56.1(2), and why the agreement should cite the subsections.
- The limits: medical, educational and residence expenses, and the cap of one fifth of the original mortgage principal.
- Why a car loan fails, mortgage payments succeed, and rent is deductible while school fees are not.
- The ordering rule that applies payments to non-deductible child support arrears first, worked through the 60(b) formula.
- Cross-border support: treaty relief, no Part XIII withholding, and registration of agreements on Form T1158.
Topic 4The Spousal Rollover, Principal Residence and Registered Plans
The Spousal Rollover, Principal Residence and Registered Plans
- The automatic 73(1) rollover, the property-by-property election out, and using capital losses that would otherwise be wasted.
- The one-designation-per-couple rule, the written-agreement requirement, and why the first spouse to designate gets the exemption.
- Subsection 40(4) on a rollover, and the flipped-property exclusion for relationship breakdown.
- RRSP, RRIF and FHSA transfers on breakdown, and the spousal RRSP attribution rule that switches off on separation.
- CPP credit splitting: the application, the exclusions, and why combined pensions after a split are often lower.
Topic 5Attribution Rules and Splitting a Private Company
Attribution Rules and Splitting a Private Company
- Why income attribution stops on separation but capital gains attribution continues until a joint election is filed, or until divorce.
- Buying out a spouse through the shareholder loan account, and tax-efficient distributions before a reorganization.
- A $2,000,000 company worked in full: the agreed value of $1,800,000, the section 85 transfer to a new company and the redemption.
- Why the parties should stay married through the reorganization, and how common-law partners lose the related-party exception after 90 days.
- The related-party butterfly across a corporate group, and trust distributions on separation.
Topic 6Legal Fees, Credits, Benefits and Equalization
Legal Fees, Credits, Benefits and Equalization
- Which legal and accounting fees are deductible, and the asymmetry between the recipient and the payor.
- The eligible dependant credit, child care expenses under joint custody, and the Canada Child Benefit reset.
- Tax discounts on equalization: comparing assets with different embedded tax on a like-for-like basis.
- How a routine indemnity clause can create reportable-transaction exposure for both parties and their advisors.
Knowledge Assessment and 2.0-Hour CPD Certificate
Worked Examples with the Full Calculations
Each one isolates a single rule so you can see exactly how it changes the result on a real file.
The 90-Day Common-Law Test
When a short separation or a reconciliation changes a couple’s status.
Validating Earlier Payments
How an agreement reaches back to make prior support deductible.
A Retroactive Lump Sum
A $40,000 court-ordered payment and the recipient’s averaging option.
Mortgage and Rent Paid to Third Parties
Which third-party payments are deductible, and which fail.
Electing Out of the Rollover
Transferring a portfolio at fair market value to use $200,000 of losses.
Dividing a $2,000,000 Company
A section 85 transfer and redemption, as spouses and as common-law partners.
Taught by Practising Tax Specialists
Hugh Woolley
CPA, CA, TEP
Independent tax consultant who has taught income tax for over 30 years. Has written courses for CPA Canada and more than 10 papers for the Canadian Tax Foundation and STEP Canada, and wrote butterfly rulings at the CRA’s Rulings Directorate. Past governor of the Canadian Tax Foundation.
Michael Cadesky
FCPA, FCA, FTIHK, CTA, TEP (Emeritus)
Managing partner at Cadesky Tax and a contributor to the profession since 1980. Past governor of the Canadian Tax Foundation, past chair of STEP Canada and STEP Worldwide, and co-author of 11 books on tax.
Everything Included with Registration
365 days of access from registration.
- 2.0h verifiable CPD certificate
- Full two-hour seminar recording
- Presentation slides
- Resources: CRA folios, forms and case law
- Knowledge assessment
- 365 days of access
Common Questions
What are the tax implications of divorce or separation in Canada?
The main ones are whether spousal support is deductible and taxable, whether property moves between spouses at tax cost under the spousal rollover, how each spouse can claim the principal residence exemption, when the attribution rules stop applying, and how registered plans, CPP credits, credits and benefits are divided. Most of these outcomes are set by the wording and timing of the separation agreement.
Is spousal support tax deductible in Canada?
Generally yes, and it is taxable to the recipient, if it is paid under a court order or written agreement, payable on a periodic basis as an allowance the recipient can use at their discretion, paid while the parties live separate and apart because of a breakdown of the relationship, and the agreement is registered with the CRA on Form T1158.
Is child support taxable or deductible in Canada?
No. Child support is neither deductible to the payor nor taxable to the recipient, unless it is paid under an agreement or order made before May 1, 1997 that has not been varied since. Where a payment mixes child and spousal support without separating them, the CRA treats the whole amount as child support.
When are a couple considered separated for tax purposes?
A common-law partnership ends once the partners have lived separate and apart for 90 consecutive days because of a breakdown of the relationship. They can be separate and apart while living under the same roof. A marriage ends for tax purposes only on divorce, although separation still affects support, attribution and other rules.
Can each spouse claim a principal residence after separation?
A married couple can designate only one principal residence per year. After separation, each spouse can designate their own home for later years only if they are separated under a written separation agreement or court order. Without one, the first spouse to designate generally takes the exemption for the shared years.
How is property transferred between spouses on separation taxed?
Capital property transferred to a spouse or former spouse in settlement of rights arising from the relationship rolls over automatically at its tax cost under subsection 73(1), so no gain is triggered. The transferor can elect out property by property, for example to transfer an asset at fair market value and use capital losses that would otherwise go unused.
Can I start right away?
Yes. The seminar was recorded live on March 12, 2024 and is available on demand. Register and begin immediately at your own pace.
Does this course provide verifiable CPD?
Yes. You receive a verifiable CPD certificate for 2.0 hours of instructional learning on completion.
What is included and how much does it cost?
Registration is $150 CAD and includes 365 days of access to the full seminar recording, the slides, a resource list of CRA folios, forms and case law, and a knowledge assessment.
Keep Building Your Personal Tax Practice
This course is one of the Personal Tax learning path. These pair well with it.
Divorce and Separation Tax
2.0h CPD on support, property division and splitting a private company.
Principal Residence Exemption
2.0h CPD on designation, land, change of use and multi-property files.
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AMT recovery, the principal residence and more.
Browse the PathReview the Tax Before the Agreement Is Final
Work out the arrangement, review the tax consequences in detail, and adjust the terms while they can still be changed.