Facts Every Canadian Needs to Know About Filing Coupled Tax Returns

Wondering what requirements the Canada Revenue Agency (CRA) has in place for married or common-law Canadians as they file their personal income tax returns?

Filing with a spouse or common-law partner on your individual tax return has many advantages and allows for more strategic tax planning, often resulting in lower overall taxes and increased benefits. These advantages can include:

• Income splitting. Reduce your overall tax burden by splitting income between spouses.
• Combined deductions and credits. Maximize your tax savings by combining or transferring credits like spousal amount, medical expenses, and charitable donations.
• Canada Child Benefit (CCB). If you have children, you can potentially increase your benefits based on combined income, especially if one spouse has low or no income.
• The goods and services tax/harmonized sales tax (GST/HST) credit. Increase potential payments based on combined family income.

Fast facts on Canada's tax rules for couples

Unlike in other countries, such as the United States, Canadian tax rules do not allow spouses or common-law partners to file joint income tax returns. Each Canadian files their own tax return and indicates their marital status and who they are married to/living with on the return.

You are required to report your marital status on your tax return and once married, you must include your spouse. If you're in a common-law relationship (defined as when 2 people live together in a conjugal relationship for 12 months, or immediately if they have a child together), then you must file as common law.

Family incomes are combined to calculate income-tested benefits, such as the GST/HST credit or the CCB. Couples also benefit from combining charitable donations and medical expenses, so your marital status can have a significant impact on your return.

Note: If you receive benefits you are not entitled to because of an incorrect marital status, you will be asked to repay them with penalties and interest due. Failing to indicate the correct marital status is tax fraud.

Filing as a married couple

If you were married or in a common-law relationship in the tax year for which you are filing, you must note your status in the “information about you” section of your tax return. You'll include information about your spouse–their name, social insurance number (SIN), net income, and employment status.

Your tax preparation software may include an option to prepare a "coupled" return, which means you enter the information for you and your spouse together but you still file separately once you have completed your tax return. By using this method, the software maximizes the benefits for the couple as a whole while still generating 2 separate returns. If your spouse claims credits, such as the CCB, or GST/HST, or if they owe any payments, you must report that as well.

As mentioned earlier, to be considered common-law partners, you must have lived together in a conjugal relationship for the last 12 months. If you have lived together for less than 12 months, the CRA considers you common-law partners if you share a child by birth or adoption or if one of you supports the other one's child.

Maximize your deductions

The spouse with the higher income should maximize deductions to reduce paying taxes at a higher rate. However, the CRA does not always allow deductions to be passed on to your spouse. For example, if you or your spouse spends money on child care, it may be possible to deduct some of those expenses from your income when filing your tax return. But, with certain exceptions, the person with the lower income must claim the child care expenses.

Filing as married: The advantages and disadvantages

Your eligibility for deductions and benefits will change based on your marital status. Here are some key points to consider when assessing the pros and cons of filing as a married couple:

• Home sales. If you both sold a home to buy your home together, only one of the sold properties may be immune from taxes. You may have to pay capital gains tax on assets earned from one of the sales.
• Transferable tuition credits. If a spouse attended university and doesn't need the full tuition credit, part of it may be claimed on the other spouse's return as a transferable tuition amount.
• Medical expenses. You can pool your medical expenses and apply the deduction to the tax return of the partner who can use it more effectively.
• Charitable donations. Charitable donations can also be combined to maximize tax credits, as higher donation amounts can qualify for larger credits.

There are other transfers you can use to lower your taxes payable including:

• The Disability Tax Credit amount—If the person with the impairment doesn't need the entire amount to reduce their income tax, it can be transferred to the supporting family member, including a spouse.
• The pension income amount—You can elect to split your eligible pension income with your spouse or common-law partner.
• The age amount—You may be able to claim all or part of your spouse or common-law partner's age amount or transfer your age amount to them.

If your partner's income is below a certain threshold, you may claim an additional tax credit.

Deduction for an elected split pension amount

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), you can benefit by paying less tax overall.

Contributing to your spouse's Registered Retirement Savings Plan (RRSP)

Contributions you make to your spouse's RRSP can be deducted from your taxable income. This is advantageous if you have a higher net income, which is taxed at a higher rate than your spouse. However, the contributions you make to a spouse's RRSP reduce your own deduction limit. The total amount you can deduct for contributions you make to your RRSP or that of your spouse cannot be more than your own deduction limit.

If you cannot contribute to your RRSP because of your age, you can still contribute to your spouse's or common-law partner's RRSP until the end of the year when your spouse or partner turns 71.

Filing coupled returns with ease

Filling out your partner's information on your tax return is fairly straightforward, but deciding which credits or expenses to claim on each return can be confusing.

To help, TurboTax offers coupled returns starting from TurboTax Standard products which are prepared simultaneously. All TurboTax programs prompt you to enter information about you and your spouse. The tax software then crunches the numbers and decides who benefits from which credits, optimizing your returns to minimize your overall taxes owed and maximizing your refunds and tax credits where possible.

TurboTax also helps you avoid common mistakes that people make when filing returns as married or common law. This is important because if you file incorrectly, the CRA may reassess your returns, and if you owe additional taxes, may impose additional interest and penalties.

In the event of a breakup

A change in your relationship may alter the benefits due or payments owed. If you receive CCB or GST/HST benefit payments, notify the CRA the month after the relationship breaks down. Otherwise, inform them of your change of family circumstance within 90 days after the separation. You can do this through your CRA My Account by completing Form RC65—Marital Status Change or contacting the CRA's general inquiries line.

If you live apart for reasons other than the end of the relationship, you must still file as married. For example, if you live apart due to work, education, or medical reasons, the CRA considers you married. Once you marry, even if you divorce, you can never file again as single.

Understanding the requirements and benefits of filing as a couple with the CRA allows taxpayers to strategically plan their taxes, potentially reducing overall tax liabilities and maximizing their benefits.

Keep more money in both your pockets when filing as married or common law.

With TurboTax Live tax experts are in your corner making sure that you get all the credits and deductions you deserve.