Unlike in other countries, Canadian tax rules do not allow spouses or common-laws to file joint income tax returns. Each Canadian files their own tax return and indicates their marital status on the return and who they are married to / living with.
You do not get to decide whether to claim your marital status on your tax return. However, once you are married or common-law, you must include your spouse. To be considered common-law, two people must live together in a conjugal relationship for 12 months or immediately if you have a child by birth or adaption or if one of you supports the other one’s child, then you must file as common-law.
The CRA knows your actual marital status based on the information you file, credits, and deductions you apply for, and based on other information that is sent in which relates to you.
Since your marital status has a significant impact on your return – family incomes are combined for calculating income-tested benefits, such as the GST/HST credit or the Canada Child Benefit.
Couples benefit from combining charitable donations and medical expenses.
Filing as Married
Suppose you were married or in a common-law relationship in the tax year for which you are filing. In that case, you must note your status as in the “information about you” section of your tax return, including information about your spouse – their name, social insurance number, net income, and employment status.
The spouse with a higher income should maximize deductions to reduce paying taxes at a higher rate.
However, the Canada Revenue Agency does not always allow deductions to be passed on to the spouse. For example, suppose you or your spouse spends money on child care. In that case, it may be possible to deduct some of those expenses from your income when filing your federal income tax return, but, with certain exceptions, the person with the lower income must claim the child care expenses.
Disadvantages and Advantages of Filing as Married
Your eligibility for deductions and benefits will change with the change of marital status. For example; If both of you sold a home to buy your home together, only one of the sold properties might be immune from taxes. You may have to pay capital gains tax on assets earned from one of the sales.
Transfers are another way to lower the tax payable overall for a couple. For example, if your spouse attended university and doesn’t require the entire tuition credit to reduce their tax payable, you may be able to claim part of this expense on your own return. Other potential transfers include the disability amount, the pension income amount, and the age amount. Similarly, if your partner’s income is below a certain threshold, you may claim an additional tax credit. In addition, you can pool your medical expenses and apply the deduction to the partner’s tax return who can use it more effectively. Charitable donations can also be combined.
Deduction for an Elected Split Pension Amount
Suppose you (the pensioner) and your spouse (the pension transferee) have jointly elected to split your eligible pension income by completing Form T1032 (Joint Election to Split Pension Income). In that case, you can benefit from this by paying less tax overall.
Contributing to Your Spouse’s Registered Retirement Savings Plan
Contributions you make to your spouse’s RRSP can be deducted from your taxable income. This is advantageous if you have a higher net income taxed at a higher rate than your spouse. However, the contributions you make to a spouse’s RRSP reduce your own deduction limit. Therefore, the total amount you can deduct for contributions you make to your RRSP or that of your spouse cannot be more than your own deduction limit. If you cannot contribute to your RRSP because of your age, you can still contribute to your spouse’s or common-law partner’s RRSP until the end of the year, when your spouse or partner turns 71.
Ending your relationship may change benefits due or payments owed. If you receive the Canada Child Benefit or GST/HST benefit payments, notify the CRA the month after your relationship has ended. If you separate, you do not have to inform the CRA until the separation has lasted 90 days. You can do this through My account by completing CRA Form RC65 Marital Status Change or contacting the CRA’s general inquiries line to give them the heads up.
If you live apart for reasons other than the end of the relationship, you must still file as married. For example, if you live apart due to work, education, or medical reasons, the CRA considers you married. Once you marry, even if you divorce, you can never file again as single. Never. Ever.