Marriage is one of life’s major milestones, and it opens up new tax planning territory for Canadian couples. Take time to learn about the tax deductions and rules for couples. You can develop a personalized strategy to reduce tax payable and build your wealth together.
“Most likely a lot of time, energy and money went into the planning of your wedding. Couples should also devote some time, energy and money into the planning of their future,” says Debbie Perepolkin, CFP, a financial planner and adviser in Castlegar, B.C.
Advise the CRA Right Away
You may not think of the Canada Revenue Agency (CRA) when sending out wedding announcements, but it actually requires prompt notice of a change in marital status. If you are a CRA My Account holder, you can update your status online using the “Change My Marital Status” feature. If you haven’t yet registered for your CRA My Account, you may download the RC65 form from the CRA website, complete, and return it.
Be sure both of you update your personal information, including name, address and marital status. If you’re now sharing a bank account, change your direct deposit information, too. Other programs such as the GST/HST credit also take marital status into account.
If you’ve been receiving GST refund payments, you may not qualify for them anymore. The CRA will look at your family income to determine eligibility for the GST/HST credit.
Make a Plan Together
“Every newlywed couple should work with a financial planner to get a full understanding of their income, expenses, needs versus wants, saving for a home, saving for retirement and educational savings for their children,” suggests Perepolkin.
Having a full understanding of your financial situation and future goals is integral to the tax planning process. Your plan might encompass buying a home, and if one spouse will stay home with the children, how best to save for retirement without two incomes while your children are young.
Open RRSP Accounts
If you haven’t started saving for retirement, consider opening an Registered Retirement Savings Plan (RRSP) account for each of you. Contributing to an RRSP is a basic tax-reduction strategy that most people are aware of.
What you may not be aware of is that married and common-law couples are also allowed to contribute to each other’s RRSP accounts. This is a way to transfer income from the higher-income spouse to the lower-income spouse, if the higher-income spouse has enough RRSP contribution room.
The advantage of this strategy is that the higher-income spouse gets a tax reduction that year. When the lower-income spouse retires and starts withdrawing money from the RRSP, he will likely be in a lower tax bracket, and the money will be taxed at a lower rate.
Open TFSA Accounts
In addition to your RRSP accounts, you may wish to open a Tax-Free Savings Account (TFSA) for each of you. Those who are in the lowest tax bracket, or who expect to receive a tax refund, may benefit more from a TFSA than an RRSP.
Perepolkin suggests a strategy of saving in a TFSA throughout the year, and then evaluating whether an RRSP contribution makes sense by calculating your tax owing at the end of the year.
If you owe taxes, you can transfer money from the TFSA to your RRSP in the 60 days prior to the RRSP contribution deadline. “This will automatically trigger a contribution, and you’ll receive the tax receipt for deduction purposes,” says Perepolkin.
References & Resources
- Debbie Perepolkin, CFP, CPCA, Advisor; Assante Financial Management Ltd., Castlegar, BC
- Canada Revenue Agency: How Does a Marital Status Change Affect My Benefits?