When dealing with a messy divorce, notifying Revenue Canada that your relationship status has changed may not be your top priority.
But experts say your marital status can have a major impact on your tax returns – and failing to report any changes could cost you.
Certain tax credits, such as the HST credit and the Canada Child Tax Benefit, are calculated based on total household income.
So if you're in a live-in relationship with someone and still filing as a single person, you could end up receiving tax credits you aren't eligible for, says Kirby Dickson, a Toronto-based senior tax professional with H&R Block.
That could leave you on the hook to later repay some of those credits, Dickson says. "Most people don't like owing Revenue Canada."
On the flip side, if you've recently separated from your partner, your household income has likely gone down, which could make you eligible for tax credits you weren't able to receive before.
One common misconception is that if you're in a common-law relationship, you can decide whether to declare that relationship on your tax return.
But tax advisers say reporting your relationship status is not optional. If you have lived with your partner for 12 consecutive months, you must report it on your return.
"We have seen cases where two people who have been living together and are not legally married are tempted to continue to file as single to avoid losing certain government benefits that they otherwise wouldn't have been entitled to," said Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management.
You're considered separated once you have been broken up for more than 90 days.
Filing your taxes can be confusing after a separation or divorce, especially if spousal support or child support payments are involved.
Child support does not count as income for the person receiving it, nor is it tax-deductible for the person who is paying it, said Dickson.
Spousal support, on the other hand, is tax-deductible. If you're declaring it on your taxes, Dickson recommends ensuring that you have proper documentation, such as a court order or a written agreement, to prove that you're paying it in case you get audited.
Messy separations can force accountants and tax professionals into the role of mediator.
"It's very difficult sometimes being the accountant, especially when they're still in the process of it and you're having to deal with two competing sides," said Mark Feigenbaum, a Toronto-based chartered accountant and tax lawyer.
"A lot of times it's also the lack of communication. If they aren't speaking to each other and you do need information from the other side, it's sometimes uncomfortable."
There may also be joint assets, such as income generated from shared investment accounts, to divvy up.
"I think it gets very complicated and very messy, and that's why we suggest in those situations people do seek professional advice," Golombek said.
"Even if they've always done their taxes themselves in the past, it may be very worthwhile sitting down with a tax professional, a tax accountant, who's been through it before and can work through some of the details."