Married or common-law, the Canada Revenue Agency doesn’t differentiate. Your significant other needs to be on your tax return – but that could be a good thing.
While spouses must file separate tax returns in Canada, you are required to report some details of their income on your return. While there can be some disadvantages to this, the positive side is there are many credits, deductions and expenses that can be claimed on either spouse’s return, usually to your family’s overall advantage.
If you are legally married, it’s a clear-cut situation in the eyes of the Canada Revenue Agency. And if you are not married but share your life with a significant other, then it’s almost certain you will be subject to the same tax-reporting requirements as a married person. This is subject to some criteria.
12 Months Together or 90 Days Apart
According to the CRA, living common-law means that you are living together in a conjugal relationship with a person who is not your married spouse for at least 12 continuous months (if you are parents of a child together, the 12-month minimum does not apply). And your marital status may change if you are separated for at least 90 days from an estranged spouse. Visit the CRA website for more details on the CRA’s definition of spouse.
“Generally, it is advantageous to file tax returns reporting as spouses,” says Aaron Gillespie, a tax partner with KPMG in Canada’s Enterprise Tax Group. “For example, where one spouse has no income or minimal income, the other spouse will receive the benefit of the individual’s basic personal tax credit – a situation that often is referred to as the “spousal tax credit”. In many cases, it is neither advantageous nor disadvantageous.”
Include Both Income and Benefits
On page 1 of the tax return, you must enter your spouse’s name, social insurance number, their net income for 2021 (even if it is zero), and whether they were self-employed during the year. You also must provide the amount of universal child-care benefits that they reported on their return, as well as any amount of those benefits that were repaid to the government.
Get the Spousal Credit
If your spouse’s net income is less than the amount of the basic personal credit of $13,808 (to which all taxpayers are entitled to claim), you can claim the unused portion. You can also claim this amount in respect of a family member (parent or child) who is an eligible dependant, but only if you are not married or common-law. There are also equivalent rules for provincial tax purposes. (In Quebec, for provincial tax purposes, there is no spousal credit, but instead the unused portion of all non-refundable tax credits can be transferred between spouses.)
Child-Care Expenses Go to Lower-Income Spouse
Eligible expenses include the costs of a child’s caregivers, daycare services, day camps, boarding schools and overnight camps, and usually must be deducted by the parent with the lower income. (Single parents, of course, are entitled to make this claim.) There are situations in which the higher-income parent can deduct childcare costs, such as when the lower-income parent is disabled for at least two weeks of the year, attending school full-time, or if the parents have been separated for at least 90 days. “In such cases, the higher-income spouse can claim the deduction in respect of each week that the condition continues,” says Gillespie. These expenses are deducted from income subject to certain limitations depending on the age of the child.
In Quebec, childcare expenses can be claimed as a refundable tax credit on the provincial return, as opposed to the federal deduction. Parents’ combined income can reduce the amount that can be claimed.
Combine the Medical Expenses
The cost of prescription drugs, eyewear and other items and services not covered by provincial or private health plans that are incurred by both spouses and dependent children can be claimed as a tax credit. Those of your spouse and dependent children can be claimed. Only the amount in excess of 3% of your net income (or $2,421 if your net income exceeds $80,700) is eligible for a tax credit. Because of the net-income threshold, it usually is advantageous to combine all of the family’s medical expenses on one tax return. You can use expenses incurred during any 12 months ending in 2021, assuming none of these costs were claimed on your 2020 return.
“It is normally better for the lower-income spouse to make the claim since their 3% threshold will be lower than the higher-income spouse,” Gillespie says.
In Quebec, the provincial credit for medical expenses is also reduced by 3% of family net income, but there is no cap, which means that many taxpayers are not entitled to this credit.
Charitable Donations
[For Quebec tax purposes, the rules for claiming donations are somewhat different.]
Donations to registered charities bring a three-tier tax credit:
- On the first $200 of donations, you get a 15% federal credit (about 23% when provincial tax is taken into account, depending on the province of residence).
- Donations above that level give you a 29% federal credit (and 47% including a provincial credit, depending on the province).
- If your income is above $217,000, a higher credit is available for donations made in 2016 and later.
Donations made during previous years (but not yet claimed for a credit) can be carried forward and used for a credit in a future year. Thus, it may be worthwhile to wait and amass a larger sum of donations over several years before claiming a credit. Also, note that you cannot claim a credit for more than 75% of your net income for the year in which the credit is being claimed.
Both spouses’ donations to a registered charity also can be combined and claimed on one spouse’s return. “If you and your spouse donate separately, you should combine your receipts and claim them all on one return to avoid having to get the low-credit rate on $200 twice,” says Gillespie. “The higher-income spouse should claim all the donations on their return. Donations made by one spouse can also be split between the two spouses in whatever proportion they choose. Further, spouses are able to claim each other’s unused charitable donation carry-forwards from a prior year.”
Other Transferable Credits
The following credits can be transferred for use by the higher-income spouse:
- Age amount (if your spouse or common-law partner was born in 1956 or earlier)
- Canada caregiver amount for infirm children under 18 years of age
- Pension income amount
- Disability amount
- Tuition amount (post-secondary education)
The total amount of these transferable credits is limited the spouse’s taxable income ($49,020 or, if it is higher, their basic-personal-amount credit, divided by 15%), less the total of the following:
- Basic personal amount
- Disability amount transferred from a dependant
- Your tuition education and textbook amounts
Pension Income Splitting
One of the biggest tax advantages for spouses is the ability to split up to one half of individuals pension income. “This provides taxpayers with the opportunity to reduce the family’s overall tax burden by taking advantage of marginal tax rates of a lower-income earning spouse, ” says Gillespie. “These rules generally provide a significant tax break to pensioners in Canada.”
Credits You Could Lose
Being married or common-law means you could lose some credits you might otherwise have if you were single, divorced or widowed. The following credits could be impacted due to the effect of your combined income:
- GST/HST credit – This is reduced gradually if your family net income exceeds $38,892. You also are not entitled to a supplemental amount.
- Canada Child Benefit – This is phased out gradually if your combined income exceeds $32,028.
- Eligible-dependant credit – If you are married/common-law, you cannot claim a dependent child (although you may receive the benefit of the transfer of your spouse’s basic personal credit).
- Guaranteed Income Supplement – If single, you are entitled to this if your income is below $19,464. If married/common-law, you receive this only if your combined income is below $25,728, assuming your spouse also receives fill OAS. (If they do not, then the maximum combined income limit is $46,656.)
Home Buyer’s Credit
This credit is available to an individual or couple who haven’t owned a home during the year the new home is acquired and in any of the four preceding years. You and your spouse can claim up to a combined $5,000 in relation to the purchase of a qualifying home. This credit is worth at least $750. The credit can be claimed on one person’s tax return, or split between both spouses’ returns.
Future Planning
It pays to make the most of tax-saving opportunities when filing your tax return. But additional tax savings can be achieved through shrewd tax planning for future years. For example, spouses may want to take advantage of spousal RRSPs, which allow one spouse to contribute to their spouse’s registered retirement savings plan (RRSP), and to avail themselves of various income splitting opportunities.
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