Love and Taxes in Canada: A Married Couple’s Tax Guide

Once your marital status changes, your tax situation changes as well.

If you got married or started a common-law partnership last year, you’ve probably already made some significant changes in your life. You’ve learned how to deal with problems as a couple, from splitting home tasks to discovering your partner is a secret Real Housewives fan.

Filing taxes together for the first time may be an unfamiliar experience for you as well, and not one as easily solved as learning to tolerate sitting through the antics of spoiled socialites once a week!

Tax Facts for Canadian Couples

Let us first clarify the procedures that the Canada Revenue Agency (CRA) has in place for married or common-law Canadians who submit personal income tax returns.

• Unlike in other countries, such as the United States, spouses or common-law partners are not permitted to file joint income tax returns in Canada. Every Canadian submits their own tax return, indicating their marital status and who they are married to/living with.
• You do not have the option of claiming your marital status on your tax return. You must include your spouse once you are married. To be considered common-law, two individuals must live together in a conjugal partnership for 12 months, or immediately if you have a child, before filing as common-law.
• The CRA knows your actual marital status based on paperwork you file, credits and deductions you apply for, and other information you send in.
• Because your marital status has a substantial impact on your return, family incomes are pooled for income-tested benefits like the GST/HST credit or the Canada Child Benefit.
• Combining charitable donations and medical bills benefits couples.

NOTE: If you obtain benefits that you are not entitled to due to an erroneously reported marital status, you will be required to refund them, plus interest and penalties.

As far as the CRA are concerned, tax fraud occurs when the right marital status is not indicated, even if the mistake is mad quite innocently (which may b the case for common law relationships.

Filing As Married

If you were married or in a common-law relationship during the tax year for which you are filing, you must provide information about your spouse – their name, social insurance number, net income, and job status – in the “information about you” portion of your tax return. You must also disclose if your spouse claims credits, such as the CCB or GST/HST, or owes any payments.

As previously stated, you must have lived together in a conjugal relationship for the previous 12 months to be deemed common-law partners. If you have been living together for less than a year and share a child through birth or adoption, or if one of you supports the other’s child, the CRA also considers you common-law partners and expects you to state this on your tax return.

The spouse with a greater income should utilize deductions to avoid paying higher taxes.

The Canada Revenue Agency, on the other hand, does not always enable deductions to be passed on to the spouse. For example, if you or your spouse pay for child care, you may be able to deduct some of those costs from your income when filing your federal income tax return; however, with some exceptions, the person with the lesser income must claim the child care expenses.

The Benefits and Drawbacks of Filing as Married

With a change in marital status, your eligibility for deductions and benefits will change. For example, if you both sold a home to buy a home together, only one of the sold properties may be tax exempt. You may be required to pay capital gains tax on assets acquired as a result of one of the sales.

Transfers are another way for a couple to reduce their overall tax liability. For example, if your spouse went to university and did not need the full tuition credit to reduce his or her tax liability, you may be allowed to claim a portion of this amount on your own return. The disability amount, pension income amount, and age amount are all potential transfers too.

Similarly, if your partner’s salary is less than a specific amount, you may be eligible for an additional tax credit. You can pool your medical expenses and deduct them on the tax return of the partner who can use them the most effectively. Donations to charities can also be combined.

Deduction for an Elected Split Pension Amount

You can benefit from paying less tax overall if you (the pensioner) and your spouse (the pension transferee) have jointly opted to split your eligible pension income by completing Form T1032 (Joint Election to Split Pension Income).

Contributions to your spouse’s RRSP are deductible from taxable income. This is favourable if you have a larger net income than your spouse and are taxed at a higher rate. Contributions to a spouse’s RRSP, on the other hand, diminish your own deduction limit.

The total amount you can deduct for contributions to your or your spouse’s RRSP cannot exceed your individual deduction limit. If you are unable to contribute to your RRSP due to your age, you can still contribute to the RRSP of your spouse or common-law partner until the end of the year in which your spouse or partner turns 71.

Breaking Up and Your Taxes

If your partnership ends, your benefits or payments may change. If you receive Canada Child Benefit or GST/HST benefit payments, you are required to inform the CRA within one month after the end of your partnership. If you divorce, you are not required to tell the CRA until the divorce has lasted 90 days. You can do this using MyAccount, by submitting CRA Form RC65, Marital Status Change, or by informing the CRA’s general questions line.

You must still file as married if you live apart for reasons other than the dissolution of your relationship. For example, the CRA considers you married if you reside apart owing to employment, education, or medical reasons. You can never file as single again after you married, even if you divorce. Never, ever, ever.

If some of this sounds confusing, or if you are unsure about the best ways to file taxes the right way (ie the legal way) and still keep as much of your money as possible, working with a chartered professional accountant can be both very helpful in general and an excellent way to maximize credits and deductions that might be available to you.

With tax season now in full swing, it’s a great time to contact us now to help ensure that you file taxes correctly as a married couple, but that’s not all we can offer. As chartered professional accountants we offer a wide range of services including expert financial planning, which is something every new couple will benefit from, as a solid financial plan for the future is one of the keys to any happily ever after!