The 2023 Federal Budget means changes to RESP rules for separated/divorced couples.

 

The 2023 Federal Budget means changes to RESP rules for separated/divorced couples.

By Jennie Weeks

Divorced or separated parents can now open a joint RESP. But is this a good idea?

At present, only spouses or common-law partners can open a joint RESP. Parents who opened a joint RESP before their divorce or separation can maintain this plan afterwards but cannot open a new joint RESP.

Budget 2023 proposes to enable divorced or separated parents to open joint RESPs for one or more of their children or to move an existing joint RESP to another promoter.

What is the impact on separated families?

1) This makes moving a joint RESP to another institution a little easier…

2) There is an opportunity to set up a new joint RESP post-separation and have your agreement stipulate the rules of contribution and redemption. If held jointly, maximizing grants can easily be established vs sharing grants with the possibility of missing out if one parent cannot afford the contributions.

Maximum grants are achieved with a $2500 annual contribution providing a $500 grant. This amounts to $3000 per year per child per year, which can be invested until the child goes to university. If a separated couple agrees to contribute to the RESP, they may choose a proportionate share based on income and ensure these funds are used for education for their children.

Jennie Weeks is a Chartered Divorce Financial Specialist in Vancouver, BC.

Family Law Tax Matters Toolkit for Clients & Lawyers

 

Family Law Tax Matters Toolkit for Clients & Lawyers

by Anonymous

In Collaboration with Justice Canada, the Canada Revenue Agency and Finance Canada, the Canadian Bar Association has updated their popular Tax Matters Toolkits. These documents are useful for clients going through separation and divorce. The documents also help family law lawyers understand how tax rules might affect a client's future finances on separation or divorce. Various tax credits, benefits and deductions are described.

More specifically, here is what is covered in each Toolkit:

Tax Matters Toolkit (for clients)

http://www.cba.org/CBAMediaLibrary/cba_na/PDFs/Sections/taxMattersToolkitClients_Eng.pdf

WORKING WITH THE TAX SYSTEM

• Thinking about the tax consequences

• Asking questions

• Keeping receipts and important information

• Filing tax forms

• Getting advice

• Definitions

IMPORTANT CRA FORMS RELATED TO SEPARATION AND DIVORCE

• About a change in marital status

• About support payments

• About RRSPs, RRIFs, and SPPs

Tax Matters Toolkit (for lawyers)

http://www.cba.org/CBAMediaLibrary/cba_na/PDFs/Sections/Tax_Matters_Toolkit_Lawyers_Eng.pdf

SEPARATION AND THE CANADA REVENUE AGENCY

• Filing the T1 Annual Income Tax Return

• Notifying CRA of a change in marital status

• Documents supporting Change in Marital Status

• When are you Living apart?

• Same house/separate living quarters

• Couch surfing/no new fixed address

DEDUCTION FOR LEGAL FEES

• Legal basis for deduction of legal fees

• CRA approach

PRINCIPAL RESIDENCE" RULES

• "Principal residence" criteria

• Issues at the time of separation or divorce

SPOUSAL SUPPORT

• Characteristics of spousal support

• Spousal support is paid before there is a written agreement or court order in place

• "Specific Purpose" and Third-Party Payments

• How to notify CRA of spousal support payments

• Spousal support payers – Deductions for spousal support payments

• Spousal support recipients – Reporting spousal support payments

• Spousal support payers – reducing taxes withheld at the source

• Spousal support recipients – increasing taxes withheld at the source

• Deductions for the payer – the year of relationship breakdown

ARREARS AND LUMP-SUM PAYMENTS

• Tax impact of a lump-sum payment on the payer

• Qualifying Retroactive Lump-sum Payments (QRLSP)

• Tax impact of a QRLSP on the recipient

CHILD SUPPORT

• Tax treatment: written agreements and court orders from before May 1997

• Federal Child Support Guidelines

CHILD BENEFITS

• Canada Child Tax Benefit

• Child Disability Benefit

• Eligible dependent credit

• Child Care Expense Deduction

• Tuition, Education, and Textbook Credit

PENSIONS

• Canada Pension Plan

• CPP: credit splitting

• CPP: end of pension sharing

• Payment of taxes at source when pension plan benefits paid

REGISTERED RETIREMENT SAVINGS PLANS (RRSPS) AND REGISTERED RETIREMENT INCOME FUNDS (RRIFS).

• Transfer of RRSP or RRIF funds to a former spouse or common-law partner

APPENDIX – DRAFT TAX LETTER