Why the CRA Cares So Much About Your Relationship Status

A change in relationship status can have a big impact on your life – including when it comes to taxes.

The Canada Revenue Agency (CRA) uses a couple’s total income to calculate the benefits to which you are entitled, says Emily Verrecchia, a tax expert at TurboTax Canada.

The amount of social assistance payments, Working Income Tax Benefit and GST/HST credits may change along with your relationship status, she explains. Provincial tax credit eligibility may change, too.

“You should notify the CRA as soon as there’s a change,” Ms. Verrecchia says.

“If you delay notifying the CRA and are currently receiving government or child support, you may be subject to pay anything you owe, backdated to the change in your status,” she offers as an example.

Marriage or common-law relationships, separation, divorce, and widowhood all change your tax status with the CRA, says Morgan Ulmer of Caring for Clients, a financial planner service with offices in Toronto and Calgary.

“For example, if you get married, the CRA will now calculate government benefits based on your household income, which is a combination of both partners, and this may affect the eligibility for certain benefits and tax credits,” she says.

The agency doesn’t give people much time to adjust to the change, she says. Taxpayers are required to let CRA know about changes to their relationship status by the end of the following month.

“So if you get married in June, you must notify CRA by the end of July,” Ms. Ulmer says.

You can do that by calling CRA, through your online My CRA account if you have set that up, or by mailing in a Marital Status Change form.

According to Statistics Canada, 56 per cent of Canadians aged 25 to 64 are married and 15 per cent live in common-law partnerships, while six per cent are separated or divorced.

Where the CRA is concerned, people who have been living apart from their spouse or partner for 90 consecutive days are considered separated, Ms. Ulmer says. While there may be some grey areas as people work out difficult situations, it’s important to move ahead with informing the agency after 90 days, she suggests.

“I would encourage people not to let these timelines confuse or paralyze them. The important takeaway is to let CRA know once you’ve been separated for those 90 days,” she says. “Unfortunately, CRA doesn’t see the emotional turmoil of a divorce as a reason to not know your tax stuff.”

“Ultimately if your relationship status changed over the past year – whether you got married, began a common-law relationship or separated from your partner – chances are you’ve already navigated some big adjustments in your life. And while filing taxes together or separately for the first time may also be a new experience for you, it doesn’t need to be a scary one,” Ms. Verecchia notes.

Online tax solutions like TurboTax offer a wide range of innovative tax solutions to help you file your taxes with confidence, whether you’re looking to do taxes by yourself or with the help of an expert.

When it comes to marriage or common-law partnerships, taxpayers can claim all or part of a spouse’s pension income or disability amounts if they don’t need them to reduce their own taxes to zero, Ms. Verrecchia points out.

Married or common-law couples can also combine their charitable donations and medical expenses to their advantage, she adds.

“But the biggest tax benefits reside with retirement savings plans,” she says. “You can purchase spousal RRSPs for added deductions, benefit from income-splitting opportunities in retirement and transfer plans to the surviving spouse without tax consequences.”

Retired spouses or partners can split the Canada Pension Plan credits they accumulated during their working years, and under the Lifelong Learning Plan people can withdraw amounts from their registered retirement savings plans (RRSPs) to pay for training or education for themselves or their partner, Ms. Verrecchia says. They can also transfer to their spouse or partner their unused tuition, education, and textbook amounts, if they don’t need them to reduce their own taxes to zero, she adds.

It’s also very important for people to know what is taxable and what is deductible in relation to a divorce, Ms. Ulmer says.

For example, legal fees, spousal support and child support are each taxed differently, Ms. Ulmer says. But legal fees paid to a divorce lawyer to negotiate a divorce settlement are not deductible.

“However, if you paid legal fees to enforce your right to child support or spousal support, or you used a lawyer to defend against a reduction in these payments, you can deduct those on your tax return,” she says.

Spousal support payments are deductible for the payer and taxable for the recipient, while child support is not deductible for the payer and not taxable for the recipient, she explains.

It may be tempting for those in common-law relationships to file taxes as a single person if they feel it’s more beneficial, but it’s not worth it, Ms. Ulmer warns.

“This can be considered fraud and that brings about some unpleasant consequences,” she says. “You could be reassessed for overpaid benefits or unpaid taxes. You could be charged interest. You could be charged penalties. They can deny you CPP benefits. They can deny other pension survivor benefits. So we always encourage our clients to not play in that grey zone and just go by the definitions of whether you’re married or common-law or separated or divorced and let CRA know.”

Knowing the specifics about tax deductions and credits when it comes to relationship status pays and TurboTax automatically searches over 400 credits and deductions so you get every dollar back.

“With TurboTax, you can do your taxes by yourself, have an expert answer questions along the way and review your return before you file, or meet with an expert while they handle your taxes from start to finish,” Ms. Verrecchia says.

For more top tax tips, click here.