Love & taxes – yes they do go together!
With Valentine’s Day around the corner, are you part of the growing number of married Canadian’s looking forward to celebrating Valentine’s Day as a ‘bona fide’ married couple this year? For many the pandemic was as good a time as any to get married. As newlyweds there will be many firsts ahead, not the least of which is the first time you will file your tax return as a married individual. That’s right; you may be surprised to learn that getting married affects how you are taxed in Canada. And with our close proximity to the US, it’s not really surprising that many newlywed Canadians are under the mistaken belief that they can file their tax returns jointly, which is allowed in the US. This is not the case in Canada. Married couples are required to file their tax returns separately. Even though you file your returns separately, there are a number of changes in how your taxes and credits are calculated that are important for you to note. In addition, although you aren’t allowed to file jointly, you nevertheless must indicate your spouse’s income on each respective return. And it doesn’t end there; there are also a number of rules that prevent married couples from shifting income between related groups. And if you are thinking of filing your return as though you are still single, think again! Failing to report your marital status correctly on your return could result in a reassessment which might end up costing you additional interest and penalties.
As with any rite of passage there are changes you must contend with, both good and bad; but don’t let this put a damper on your newly wedded bliss. To help you stay on track, here are a few things to consider as you prepare your inaugural tax returns as newlyweds.
6 Steps you should know
- Don’t forget to let the CRA (Canada Revenue Agency) know about your change in marital status. You can do so by calling them directly or by accessing your account online.
- When filing your T1 Tax return remember to tick the box that says ‘married’ on page one of the return and input your spouse’s net income where indicated. A number of tax credits and supplements are income tested using your combined incomes for example the GST/HST tax credit and the working income tax credit.
- As a newly married couple there are some additional benefits you can take advantage of for the first time this year to reduce your overall tax bill. Medical expenses and donations are just two examples of credits that can be combined and claimed on either spouse’s return. As a rule of thumb it’s generally best to claim the medical expenses on the lower income spouses’ return and charitable donations on the higher income spouses’ return. But make sure to check which works best in your situation.
- There are other tax credits that can be split or claimed on either spouse’s tax return: the public transit amount and the home buyers’ amount are two that come to mind. This gives you and your spouse the flexibility to claim the credit where it works best.
- If you are in the situation where one of you is unable to use all of your non-refundable credits, don’t despair. In certain cases credits can be transferred to the other spouses return like in the case of tuition and education amounts.
- Last but not least, if you and your spouse have been busy saving in a joint non-registered account, keep in mind that the investment income should be reported based on the funds contributed to the account by each spouse. That means that if the funds were provided equally then the investment income should be split equally.
Now go on crack the bubbly and enjoy your valentine’s day. But don’t be surprised if 10 years from now you are more than a little thankful you took the time to get your tax affairs in order – right from the beginning.