WHEREAS under existing rules of Canada’s Income Tax Act, the sale of residences must be
reported, resulting in taxation of capital gains if the taxpayer is not resident in the building at the
time of its sale;
WHEREAS if a joint owner has to leave the family residence due to breakdown in the spousal
relationship, when the residence is subsequently sold, he or she is taxed on capital gains;
whereas, if the other joint owner remains in the residence until it is sold, he or she may claim a
“primary residence” tax exemption;
WHEREAS existing federal spousal support guidelines place an arbitrary ceiling on support
calculations if the payor’s income exceeds $350,000/yr, necessitating protracted and costly
litigation to determine interim or final support entitlement, resulting in financial duress;
WHEREAS removal of the ceiling on the spousal support calculations would create certainty in
the event of marital breakdown and ensure both parties have sufficient resources to secure legal
representation to address issues such as property division and child custody in an equitable
BE IT RESOLVED that the Liberal Party of Canada urge the Government of Canada to amend
the rules for claiming a “primary residence” capital gains exemption to include a joint owner
forced to leave his or her residence upon the breakdown of a common-law or marital
BE IT FURTHER RESOLVED that the Liberal Party of Canada urge the Government of
Canada to remove the $350,000 income ceiling in the spousal support guidelines, so that both
parties can access justice equally.
WOMEN’S LIBERAL COMMISSION BC
SOUTH SURREY– WHITE ROCK
Contact: Jodie Stark
Equal Justice for Both Parties of a Separating Couple
Briefing Note: CRA Principal Residence Reporting
An amendment to the federal tax legislation (the Income Tax Act and Regulations) regarding the tax reporting of sales of homes in Canada. The proposal is intended for women who are forced to flee the family home due to safety concerns and/or relationship breakdown, and to ensure that they are not taxed when the home is ultimately sold (while the partner is allowed to claim a primary residence exemption to avoid taxation).
CRA now requires (as of 2016) the reporting of a sale of all homes in tax returns, even those previously occupied as a primary residence. For those people still living in the home that is sold, it can be claimed as exempt as a “principal residence”. It will attract a capital gain and a tax if the home that is sold is no longer a principal residence.
Women who are encouraged or forced to leave a family home for safety reasons or other personal reasons (such as domestic violence issues), can no longer claim that home as a principal residence. The net effect is that the spouse who remains in the home when it is sold can claim the exemption and pays no taxes. The woman who was forced out of the home cannot claim the exemption and will be required to report and pay taxes on the home if it is in her joint name, at some future date when that home is sold. As the remaining partner could remain in the family home for years before selling, during which time the home increases substantially in value, this could result in a significant tax liability and add to the financial hardship of a woman who has fled an unhealthy home environment.
The Proposed Solution:
That CRA make an exception in the case of marital/relationship breakdown so that the partner leaving is not unduly forced to pay taxes resulting from the sale of what was previously a family home occupied by that person.
Briefing Note: Federal Spousal Support Guidelines
Amendments to the federal legislation concerning spousal support guidelines (the Divorce Act and Regulations). The proposed amendment is intended to ensure women who are primarily homemakers or who otherwise have limited access to financial resources receive adequate financial support so that they have the ability to secure their legal rights and have access to justice in the event of marital breakdown.
In Canada, there are situations upon which a spouse or common-law partner will be entitled to payment of support upon a breakdown of a relationship. This is often the case where one person earns the household income and the other raises the family and cares for the home. Also, in cases where one partner stayed home to offer indirect support for the other to advance a career over a very long time period – over twenty years for example – then support is often ordered. The federal tables for child support are set out and followed by courts throughout the country; the establishment of those tables significantly reduced the amount of protracted litigation throughout the country, as amounts payable are known simply by applying respective incomes to the tables. These tables were enacted in the mid-1990s to cut back on the substantial amount of litigation involving the calculation of child support payments – it made the amounts more certain and more fair to all families. After these tables were in place, there was little need for lawyers, courts or lengthy litigation for calculating child support.
However, spousal support guidelines contain a rather arbitrary ceiling of $350,000 in income; accordingly, if one spouse is successful in his career as a result of his partner staying home to care for family, and his income exceeds that sum, his calculation of support is up for argument and judges have wide discretion on whether or not to apply the tables and to what extent. The issue of amount of spousal support becomes unclear and that means it is subject to litigation which can go on for years. The problem with this is that the low/zero income earner – often a wife who remained at home to support the family and manage the home – ends up with very little (or no) income while the matter drags on for years and years to trial – and often into years of appeals by the spouse with the high income (who has the ability to hire expensive legal representation to fight any claim of support). The women are unable to obtain public assistance or legal aid for the legal battle which ensues, due to the amount of family property under dispute. Women have gone into bankruptcy trying to fight for their rights, and are usually forced to self-represent with no legal counsel present. Most times, the end result is that custody of the children is also turned over to the spouse with the money and legal representation.
The arbitrary manner through which high income earners are able to circumvent set support guidelines, creates years of unnecessary litigation and expense and often prevents women and children from achieving justice. Full court dockets prevent the access to justice that these women and children require during the years waiting for a trial to be scheduled. The cost of fighting for support when the guidelines impose this “ceiling” of $350,000 can often far exceed any support payments ultimately ordered by a court. The fight for support continues on an annual basis in most circumstances, as the ceiling forces the issue into the court system for further litigation and negotiation annually.
The entire reason support tables were put into use was to provide certainty and to ensure families will not suffer intentionally when a family breaks up. However, this particular income ceiling serves no purpose other than to clearly benefit the wealthy spouse to avoid payment of support where it is clearly warranted. In a marriage breakdown after a long period of time – in excess of 20 years – the income-earning spouse is generally at his highest earning capacity. By creating an arbitrary ceiling he is able to delay or fight support payments against the spouse who has been out of the workforce the longest, or who has sacrificed a career and reached an age where it is very difficult to “start over” with a new career. It’s in these long-term marriages where there is the most economic co-dependence and where this support guideline does the most damage to women and children.
By removing the arbitrary ceiling of $350,000 for spousal support, this will remove the need for litigation and clarify the expectations for support in Canada, once entitlement for support is proven. The income earned can simply be applied to the support tables and calculated without the need for judicial intervention and further delays. In the interim, this can balance the family income and provide the woman with means to secure legal counsel to represent her rights with respect to child custody and property division. There is no logical reason why someone who is a higher earner is not subjected to the same rules regarding support as someone who is a low income earner; the current approaches creates unnecessary litigation in the system and favours wealthy males in our society while creating financial hardship for women and children – who are most vulnerable. This proposal is not intended to alter the considerations used to determine eligibility to spousal support itself.
Footnote: There is much empirical evidence available to show that women are generally the lower earners in Canada and far less likely to be in the category of earning in excess of the $350,000 ceiling – and therefore stand to lose financially upon breakdown of a relationship; here is just one excerpt:
“A look at the area’s highest male and female earners shows a stark difference.
The 10 top-paid men made between $402,202 and $726,315 in salary and taxable benefits in 2016 with half of them earning $500,000 or more.
The women at the top of the salary ladder made about $100,000 to $300,000 less with one making more than $400,000.
“Men still occupy more senior level roles across society than women do and that’s just a fact,” said Tanya van Biesen, executive director of Catalyst Canada, a global nonprofit working to accelerate progress for women through workplace inclusion. “If you look at the Canadian labour pyramid, women occupy 47 per cent of the workforce in Canada and that pyramid narrows quite quickly to 7 per cent senior executive roles and less than 5 per cent CEO roles.” April 14/17 – Hamilton Spectator