If you’re reading this before or after a recent marriage, congratulations! While this is a time of celebration and excitement, it’s also a period of adjustment. One of the many adjustments that come with married life is your tax preparation and reporting obligations. These obligations apply to couples who are legally married or in common-law relationships.
The Canada Revenue Agency (CRA) considers you common-law if you are living in a conjugal relationship with another person for 12 consecutive months (and have not been separated for more than 90 days) or the person you are living with is the parent of your child by birth or adoption, or your child is wholly dependant on your partner financially and your partner has care and control over them (or did before they turned 19.)
Whether married or living common-law, Canada does not offer the option to file a joint tax return, as each partner must file an individual return. However, being married or in a common-law partnership not only impacts the way you file your taxes, it also opens up more options with benefits and tax credits.
The information here provides a general framework. The specifics that apply to your taxes, including tax planning for your future together, require tax help from professionals.
Understanding Your New Filing Status
Once you’re married or meet the criteria for living common-law status in Canada, you must inform the CRA of your new status, and you’ll need to report your taxes as married or common-law for the tax year you were married.
Updating the CRA is straightforward: you can do it online through CRA’s My Account, by phone, or by sending a completed form RC65. Updating your marital status promptly ensures you and your partner enjoy the benefits available with these designations. It also starts your marriage journey off on the right foot with the CRA and helps you plan your financial future.
When filing your taxes, you must include your spouse or common-law partner’s name, social insurance number (SIN), net income (even if zero), amount of universal child care benefits (UCCB) and/or UCCB repayment, and whether they were self-employed during the tax year.
Tax Credits, Benefits, and Deductions for Newlyweds
As newlyweds and common-law partners in Canada, understanding how to leverage tax credits, benefits, and deductions effectively and what can be transferred or shared between partners is a key part of optimizing your joint financial health. These are just a few of the more common benefits and credits applicable to newlyweds, but many more exist. Speak to experienced tax professionals for all the credits and benefits that apply to your specific circumstances.
Home Buyers’ Amount
If you or your spouse or common-law partner buy a home for the first time, you might be eligible for the Home Buyers’ Amount, a credit designed to assist with the purchase costs by reducing your taxable income.
You can claim up to $10,000 on the purchase of a home by you or your spouse or common-law partner if you did not live in another home (even outside the country) that you or your spouse or common-law partner owned in the year you purchase this home or the 4 years preceding the purchase of the home.
Canada Child Benefit (CCB)
For couples with children, the Canada Child Benefit is a significant tax-free monthly payment made to eligible families to help with the cost of raising children under 18. The amount received is based on the family’s net income, so reporting your combined income accurately is essential to receiving the correct payment amount.
Spousal and Common-Law RRSP Contributions
You can make contributions to your spouse’s RRSP or common-law partner’s Registered Retirement Savings Plan (RRSP) as an effective way to reduce your taxable income if you’ve already made the maximum contribution. It is particularly advantageous if one spouse earns significantly more than the other, who hasn’t maxed out their maximum contribution amount. The higher-earning spouse can contribute to their spouse or common-law partner’s RRSP, receiving the tax deduction now, while in retirement, withdrawals by the lower-income spouse are taxed at their potentially lower rate.
Medical Expenses and Charitable Donations
Pooling and claiming these expenses on one partner’s tax return can maximize deductions. The CRA allows you to combine medical expenses for both spouses and any dependents, claiming them on one return, usually the one with the lower net income to get the most benefit. Similarly, combining charitable donations can increase the tax credit.
Pension Splitting
For couples with differing income levels, pension splitting can be a valuable tool. Up to the lesser between $2000 or the amount of your eligible pension income minus amounts allocated to the receiving spouse or common-law partner can be shifted from the higher earner to the lower earner’s tax return. This strategy not only lowers the overall tax burden but also can help in reducing the higher earner’s income to a lower tax bracket, maximizing savings.
Before claiming any benefits or credits or making transfers, consult a tax expert. Claiming amounts you aren’t eligible for is one of many common CRA audit triggers.
Final Thoughts
April 30 is usually the deadline for Canadians to file their taxes. This deadline is extended to June 15 if you are self-employed or are the spouse or common-law partner of someone who is. Regardless of your tax filing deadline, taxes owed must still be paid by April 30 in order to avoid interest costs.
