The tax implications of getting back together

Q: My wife and I separated two years ago but we’re now trying to work things out for our kids. What impact will our reuniting have on government benefits my wife has received and what will the tax consequences be? Will we end up owing money? —Joshua Elimino, Scarborough, Ont.

A: It isn’t unusual to have a lower overall tax burden when separated, says chartered accountant Enzo Testa, a partner at Collins Barrow. “Any spousal support paid is deductible by the payer and taxable to the recipient. If the recipient is in a lower tax bracket, which tends to be the case, this alone results in lower taxes.” Some tax credits are based on family income—so the lower the income the higher the credit, and other credits require that the parents are “separate and living apart.” Things like the child tax benefit or HST rebates “may need to be refunded if income levels change as a result of the reconciliation” says Testa, but you wouldn’t owe anything for the lower taxes you paid during the years you were separated.

Bruce Sellery is a frequent guest on financial television shows and author of Moolala. Do you have your own personal finance question? Write to us at [email protected]

About Bruce Sellery

Bruce Sellery is the CEO of Credit Canada, the country’s longest-standing non-profit credit counselling agency. He is a former MoneySense columnist.