Westside Family Law

A full-service family law firm serving West Vancouver and the surrounding areas

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Taxation on property division in divorce

There are a number of complicated factors to take into consideration when a couple decides to divorce. Of these, property division can be among the most contentious. It can be complicated to determine how settlements are taxed, but here in British Columbia, a strict set of rules must be adhered to in order to avoid tax trouble farther down the line.

Each province and territory has its own way of handling taxation. However, certain laws are universal and are laid out in the Real Property Tax Act, which is overseen by the Canadian Revenue Agency. If, for example, a cash settlement is offered as part of the divorce proceedings, it would depend what the settlement was meant to cover. A settlement meant to equalize marital property is not considered taxable, but neither is it considered tax-deductible.

A significant part of determining taxation is documentation. In some cases, if a settlement is arranged without being documented in the separation agreement, it could be interpreted as taxable income. For example, if the sum was paid through a corporation, a T4 statement would reflect the payment; it would then become taxable income to the recipient spouse. 

Ultimately, it is up to both spouses to obtain the appropriate support in handling property division and other aspects of divorce proceedings. Experienced attorneys working can help to articulate the complicated nature of divorce law in British Columbia and help an individual work toward an amicable, or at least equitable, divorce agreement. This can help both parties move forward in a positive emotional and financial position. 

Source: moneysense.ca, "Do I need to pay tax on my divorce settlement?", Debbie Hartzman, Jan. 20, 2017

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