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 file 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 people must live together in a conjugal relationship for 12 months, or immediately if you have a child, then you must file as common law.
The CRA knows your true marital status based on the information you file, credits and deductions you apply for, and other information you send in.
Because your marital status has a significant impact on your return, family incomes are combined to calculate income-tested benefits such as the GST/HST credit or the Canada Child Benefit.
Combining charitable donations and medical expenses benefits couples.
It is important to take note that if you receive benefits that you are not entitled to due to an incorrect marital status, you will be required to repay them, with penalties and interest.
Failing to indicate the correct marital status is considered tax fraud.
Filing as Married
If you were married or in a common-law relationship during the tax year for which you are filing, you must include information about your spouse – their name, social insurance number, net income, and employment status – in the “information about you” section of your tax return. You must also report 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 considered common-law partners. If you have been living together for less than a year and share a child by birth or adoption, or if one of you supports the other’s child, the CRA considers you common-law partners.
The spouse with a higher income should maximize deductions to reduce paying taxes at a higher rate.
The Canada Revenue Agency, on the other hand, does not always allow deductions to be passed on to the spouse. For example, if you or your spouse spend money on child care, you may be able to deduct some of those expenses from your income when filing your federal income tax return; however, with some exceptions, the person with the lower income must claim the child care expenses.
Disadvantages and Advantages 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. The disability amount, the pension income amount, and the age amount are all potential transfers. Similarly, if your partner’s income is less than a certain 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 more 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 elected to split your eligible pension income by completing Form T1032 (Joint Election to Split Pension Income). More information on pension splitting can be found here.
Contributing to Your Spouse’s Registered Retirement Savings Plan
Contributions to your spouse’s RRSP are deductible from your taxable income. This is advantageous if you have a higher net income than your spouse and have been taxed at a higher rate. Contributions to a spouse’s RRSP, on the other hand, reduce your own deduction limit. The total amount you can deduct for contributions to your RRSP or your spouse’s RRSP cannot exceed your own 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. Please click here for more information on RRSPs.
Filing Coupled Returns
Filling out your partner’s information on your tax return is simple, but deciding which credits or expenses to claim on each return can be tricky.
IDM offers coupled returns and also assists you in avoiding common mistakes that people make when filing returns as married or common-law, which is important because if you file incorrectly, the CRA may reassess your returns and impose additional interest and penalties if you owe additional taxes.
The end of your relationship may result in a change in benefits or payments owed. If you receive Canada Child Benefit or GST/HST benefit payments, notify the CRA within one month after your relationship has ended. If you divorce, you do not have to notify the CRA until the divorce has been finalized for 90 days. You can do this through MyAccount, by completing CRA Form RC65, Marital Status Change, or by informing the CRA’s general inquiries line.
You must still file as married if you live apart for reasons other than the end of your relationship. For example, the CRA considers you married if you live apart due to work, education, or medical reasons. You can never file as single again after marrying, even if you divorce.
Learn more tax tips here to help you this coming tax season.