Married Couples Tax Consideration
About the Author: Wilson Wong PC, are Chartered Accountants in Calgary providing tax and accounting services to small and medium sized businesses and high networth individuals.
Getting married is a really big event in life. Strangely enough it has big impacts on your taxes. Even if you're not married and you're in a common law relationship this article will affect you.
In Canada all individuals file separate tax returns, but if you're married there are effects on both of your individual tax returns. You may choose to file "separately" with your own accountants or maybe one of you use Quicktax and the other uses a Chartered Accountant like myself but in the end the Accountant will be wise enough to tell you there are details that I will need from the other spouse's tax return even if I'm not filing for them.
The following is a discussion on some of those items that will affect the both of your individual tax returns:
1) Spousal Credit - the most basic of them all. If one spouse doesn't work and the other works (or at least 1 spouse is making less than $11K annually) then the other spouse can claim a tax credit as consideration for taking the other spouse as a dependant.
2) Amount for Children - Any parent can claim this $2K tax credit but only 1 of you may claim it. You would be surprised to know that when married parents decide to file separately on their own they both end up each claiming this credit.
3) Childcare Expenses - if you have kids and you have costs of childcare such as a nanny or daycare centre that you pay for, regardless of which parent paid for the amount the rule is the lower income spouse gets to deduct this from their taxable income. There is no choice in the matter.
4) Universal Child Care Benefit - Similar to the Childcare Expenses the spouse with the lower income is the one who must claim the amount on their income taxes, sometimes it is the higher income spouse who made the application for the UCCB and as a result the RC62 slip is in the name of the higher income spouse. It doesn't matter which spouse's name is on the RC62 slip it you should claim it on the lower income spouse, besides, it's more tax advantaged this way.
5) Medical expenses - you may claim eligible medical expenses for yourself, your spouse, or common law partner, and your kids under 18. The most tax advantaged way to administer this is to give all of the medical expenses to the lower income spouse. Again it doesn't matter which spouse paid for it.
6) First time Homebuyer's Tax Credit - you can claim a $5000 amount for the purchase of buying a home, if neither of you have owned a home in the last 4 years. We've seen situations where 2 young individuals just got married, but one of the spouse actually owned a home previously either by inheritance or their parents thought it was a good idea to put their kid's name on it, and now these two young people are married and buying a home for the first time. Sorry tough luck you don't get to claim the $5000 amount now, neither of you.
7) Pension Splitting Election - You may split your eligible pension with your spouse. For example you may have a good pension and you're elapsing into higher tax brackets, but under this election you could literally "give" part of that income to your spouse's income tax return and be taxed at lower rates. There are many factors of consideration that go into optimizing your Pension splitting calculation, not just how much income you're making. There are considerations for Old Age Security, your Age relative to RRIF's, other tax credits only available to 1 spouse not the other, etc. I never recommend you try and accomplish this on your own, always have a professional accountant if you want the best optimization for your pension splitting.
These items here are just the tip of the iceberg for married couple's taxes. My recommendation is you should never file separately. Always take it to the same Accountant or always use the same tax software together. As you can also see certain rules are fairly complicated and niche and your software may not even be able to pick it up. If you're looking for Accountants in Calgary you know we're here for you.
-Wilson Wong, Chartered Accountant