Let’s first set the record straight about the requirements that the Canada Revenue Agency (CRA) has in place for married or common-law Canadians as they file their personal income tax returns.
Unlike in other countries such as the United States, Canadian tax rules do not allow spouses or common-laws to file joint income tax returns. Each Canadian files their own tax return and indicates their marital status on the return, and who they are married to / living with.
You do not get to decide whether to claim your marital status on our tax return. Once you are married, you must include your spouse. Once you are common-law, 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 information you file, credits and deductions you apply for, and based on other information that is sent in which relates to you.
Since your marital status has a significant impact on your return – family incomes are combined for calculating income-tested benefits, such as the GST/HST credit or the Canada Child Benefit.
Couples benefit from combining charitable donations and medical expenses.
NOTE: If you receive benefits you are not entitled to because of an incorrect marital status, you will be asked to repay them, with penalty and interest.
Failing to indicate the correct marital status is tax fraud.
Filing as Married
If you were married or in a common-law relationship in the tax year for which you are filing, you must note your status as in the “information about you” section of your tax return, including information about your spouse – their name, social insurance number, 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 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 two 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.
The spouse with the higher income should maximize deductions to reduce paying taxes at a higher rate.
However, the Canada Revenue Agency does not always allow deductions to be passed on to the 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 federal income tax return, but, with certain exceptions, the person with the lower income must claim the child care expenses. Learn more here. with TurboTax Live we have live tax experts in your corner making sure that you get all the credits and deductions you deserve.
Disadvantages and Advantages of Filing as Married
Your eligibility for deductions and benefits will change with the change of marital status. For example; If both of you 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.
Transfers are another way to lower the tax payable overall for a couple. For example, if your spouse attended university and doesn’t require the entire tuition credit to lower his or her tax payable, you may be able to claim part of this expense on your own return. Other potential transfers include the disability amount, the pension income amount, and the age amount. Similarly, if your partner’s income is below a certain threshold, you may claim an additional tax credit. 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 can also be combined. Learn more about transferable tuition amounts in the CRA link.
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 from this by paying less tax overall. More information on Splitting pension here.
Contributing to Your Spouse’s Registered Retirement Savings Plan
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. For more on RRSP, please click here.
Filing Coupled Returns
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, and while entering the information, the tax software crunches the numbers and decides who benefits from which credits, optimizing your returns to minimize your overall taxes owed, and maximize refunds and tax credits where possible.
TurboTax also helps you avoid 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 if you owe additional taxes, may impose additional interest and penalties.
Ending your relationship may change benefits due or payments owed. If you receive the Canada Child Benefit, or GST/HST benefit payments, notify the CRA the month after your relationship has ended. If you separate, you do not have to notify the CRA until the separation has lasted 90 days. You can do this through MyAccount, by completing CRA Form RC65, Marital Status Change, or by contacting the CRA’s general inquiries line to give them the heads’ up.
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. Never. Ever.