Generally, “it is beneficial to file your taxes as a spouse”. (Photo: 123RF)
Whether you are a legal or de facto spouse, the Canada Revenue Agency does not know the difference. Your loved one should be on your tax return — which is a good thing.
Although spouses are reported separately in Canada, certain details regarding their income must also be included on yours. Although there may be some disadvantages, many tax credits, deductions and expenses can be claimed on either person’s return, often to the benefit of the family as a whole.
For those who are legally married, the situation is perfectly clear to the Canada Revenue Agency. And if you share your life with a loved one, you will almost certainly be subject to the same reporting requirements as a married person. If certain criteria are met.
Twelve months living together or 90 days apart
According to the CRA, a common-law relationship means living in a conjugal relationship, with someone you are not married to, for at least 12 months in a row (if both partners have had a child together, the minimum of 12 months does not apply). Your marital status may change after you’ve been separated for at least 90 days from an ex-partner. Visit the CRA website for more details on its definition of a spouse.
Generally, “it pays to file taxes as a spouse,” says Aaron Gillespie, tax partner in KPMG’s Canadian corporate tax group. “For example, where one spouse has minimal income or no income at all, the other will collect the benefit of that individual’s basic personal tax credit, often referred to as the ‘tax credit for joint”. In many cases, it has no particular advantages or disadvantages.
Enter both income and benefits
On the first page of your tax return, you must enter the name and social insurance number of the spouse and his net income for 2021 (even if it is zero), and indicate whether he was self-employed during the year. You must also provide the amount of the universal child care benefit that he declared on his side, as well as any other amount of benefit reimbursed to the government.
Get the spousal credit
If your spouse’s net income is less than the basic personal credit amount of $13,808 that taxpayers are entitled to, you can claim the unused portion. You can also claim this amount for a family member (parent or child) who is an eligible dependent, but only if you are legally married or common-law. There are also equivalent rules in the area of provincial taxation. (In the Quebec tax system, the spousal credit does not exist, but the unused portion of all non-refundable tax credits can be transferred from one spouse to the other.)
Childcare costs are charged to the spouse with the lower income
Eligible expenses include costs for a babysitter, child care, day camps, boarding schools, and summer camps, and must usually be claimed by the parent with the lower income. (Of course, single parents are eligible to make this type of claim.) There are situations where the higher-income parent can deduct child care expenses, such as if the higher-income parent weak is disabled for at least two weeks in the year, if he is a full-time student or if the parents have been separated for at least 90 days. “In these cases, the higher-income spouse can claim the deduction for each week that this situation continues,” says Aaron Gillespie. These expenses are deducted from income, within certain limits, depending on the age of the child.
In Quebec, childcare expenses can be claimed as a refundable tax credit on the provincial tax return, not as a federal deduction. The combined income of the parents may reduce the amount claimed.
Combine medical expenses
The cost of prescription drugs, eyeglasses, and other items and services that are not covered by provincial or private health plans and that have been paid for by both spouses and their dependent children may be claimed as a credit. tax. Only the amount exceeding 3% of your net income (or $2,451 if your net income exceeds $80,700) is eligible for a tax credit. Because of the net income threshold, it is usually beneficial to combine all family medical expenses on one tax return. You can use expenses incurred for any twelve-month period ending in 2021, assuming none of them were claimed on your 2020 return.
“It is normally better for the lower-income spouse to apply for a credit, since their 3% threshold will be lower than that of the higher-income spouse,” says Aaron Gillespie.
In Quebec, the provincial credit for medical expenses is also reduced by 3% of net family income, but it is not capped, which means that many taxpayers are not entitled to it.
(The rules are different in provincial taxation.)
Donations to registered charities result in a three-tier credit:
– For the first 22 dollars, you get a federal credit of 15% (about 23% if you take into account the provincial tax, depending on the province of residence).
– Donations above this level provide a federal credit of 29% (47% if a provincial credit is included depending on the province).
– If your income exceeds $217,000 for donations made from 2016.
Donations made in previous years (but not yet claimed as a credit) can be carried forward to a later year and claimed for that year. It may therefore be worth waiting until you have collected a larger amount of donations before claiming a credit. Please also note that you cannot claim a credit for more than 75% of your net income in the year for which the credit is claimed.
Donations from both spouses to a registered charity can also be combined and reported by one of them. “If you and your spouse are making separate donations, you should combine them and report them on one statement to avoid getting twice the low credit rate of $200,” says Aaron Gillespie. The spouse with the higher income should claim all donations on their return. Donations made by a single spouse can also be divided between them in the proportion they decide. In addition, each spouse can claim charitable donations carried over from a previous year and unused from the other.
Other transferable credits
The following credits can be transferred for use by the higher earning spouse:
– Age credit (if your spouse or common-law partner was born in 1956 or earlier)
– Canadian caregiver amount for children with disabilities under age 18
– The amount of pension income
– The amount of assistance to a disabled person
– The amount of tuition fees (post-secondary education)
The total amount of these transferable credits is limited to the spouse’s taxable income (49,292 or, if greater, his basic personal amount credit divided by 15%), less the total of the following amounts:
– The basic personal amount
– The amount of disability assistance pension transferred from a dependent
– Tuition fees and the amount of class books
Pension income splitting
One of the biggest tax benefits for spouses is the ability to split pension income to half of individuals. “This provides taxpayers with an opportunity to reduce the overall family tax burden by taking advantage of the marginal exposure rates of a lower income spouse,” says Aaron Gillespie. These rules generally provide a significant tax relief to retirees in Canada.”
Credits you could lose
Being married or common-law means you could lose some credits that you might otherwise get if you were single, divorced, or widowed. The following credits could be impacted due to the effect provided by the combination of two incomes:
– GST/HST credit: It will be gradually reduced if your net family income exceeds $38,892, and you will not be able to claim a supplement either.
– Canada Child Tax Benefit: It will gradually disappear if your combined income exceeds $32,028.
– Eligible Dependent Credit: If you are married or common-law, you cannot claim a dependent child (although you may be able to receive your spouse’s basic personal credit transfer benefit.
– Guaranteed income supplement: If you are single, you are entitled to it with an income of less than $19,464. If you’re married or common-law, you’ll only get it if your combined income is less than $25,728, provided your spouse also receives OAS (if not, the maximum combined income limit is $46,656).
Tax credit for the purchase of a home
This credit is offered to an individual or a couple who had not owned a home during the year of acquisition of the new home and during one of the four previous years. You and your spouse can claim up to $5,000 related to the purchase of a qualifying home. This credit has a value of at least $750, and can be claimed on the tax return of one of the spouses, or split between the two.
It pays to make the most of the opportunities to save money on your taxes when filing your return. But additional savings can be achieved by clever tax planning over the years to come. For example, the couple would do well to take advantage of spousal RRSPs, which allow one to contribute to the other’s Registered Retirement Savings Plan (RRSP), and the income-splitting opportunities that are available.