If you went from being a single parent family to a Brady Bunch gang, you’ve already learned that adjusting to a new family dynamic isn’t always easy – especially in the case of blended families. Your tax return has also changed. What used to be “your” credits might now be better claimed by your spouse/common law partner or vice versa. Here’s a few tips for navigating your new tax situation.
Maximum limits can make things a bit tricky when it comes to claiming certain credits. If both you and the other parent of your child both paid certain fees, the total that each of you can claim cannot be more than the maximum. For example, if you and your spouse paid $5000 in daycare fees for your 3 year old daughter and her father paid an additional $4,000, you (or your spouse/common law partner) and her father cannot both claim the full amount of the fees you each paid because the total expense is more than the $8,000 limit. You (or your spouse/common law partner) and her father could each claim $4,000 or any combination as long as the total falls below the $8,000 limit.
Some credits can be combined and claimed by one spouse/common law partner to have a bigger impact on the family’s overall bottom line.
Each spouse/common law partner can claim his/her own donations or the total of all donations can be claimed by one spouse/common law partner.
In most cases, it better to have one spouse claim the total donations. The first $200 of donations is worth 15%. Anything over $200 is worth 29%. If you each donated $150, your $300 total results in a higher credit for one spouse than two separate claims of $150.
2. Medical Expenses
Each spouse /common law partner can claim his/her own medical expenses or the expenses can be combined and claimed by either spouse/common law partner for the family including you, your spouse, any of your minor children, your spouse/common law partner’s minor children, other dependants such as parents & grandparents (yours or your spouse’s/common law partner’s).
It’s usually better to combine the expenses and have the lower-income spouse/common law partner claim the total (unless that spouse has no tax owing) due to the three percent rule. Only expenses totaling more than 3% of net income (or $2,268 whichever is less) count toward the credit so the lower-income spouse has a lower three percent threshold to reach.
Other credits and deductions can be transferred from you to your spouse. If you have unused tuition amounts, it may be better to transfer some to your spouse this year rather than wait and use the credits yourself. Tuition can only be transferred in the year it was paid – carried forward amounts are non-transferrable.
If your income is too low to fully use your disability credit, you can transfer the unused portion to your spouse. If you qualify for the Canada Caregiver Amount for taking care of an infirm family member, you can choose to let your spouse claim the credit.
Split it Up
If you or your spouse have pension income, you may benefit from pension splitting. While no money actually changes hands, you may be able to assign a portion of your pension income to your spouse to improve your overall tax situation as a couple. To learn more about pension splitting, check out our tax tip Pension Income Splitting.
Explore the Possibilities
If you aren’t sure whether you’re better off claiming credits or transferring them to your spouse, try different combinations. By transferring, sharing, and pooling credits, you’ll find the best tax strategy for your family.