Taxation is a complex process, and it can be difficult to understand the requirements for a married couple. We provide you with a complete overview of the tax laws in Canada as they apply to married couples. We shall look at how incomes are taxed separately and jointly, how various deductions work for married couples, how credits work for them, and how they can be used to offset taxes owed. And finally, things you should consider when filing your taxes as a married couple in Canada. It should be noted that you need to inform me about your change in status to “married” by the end of the month following the month it changes. e.g., if you get married in February 2020, you need to inform us by the end of March 31, 2020.
Can Common-Law couples file taxes together in Canada?
Yes, you can. As per Canadian tax laws, the CRA (Canada Revenue Agency) or Revenue Québec requires individuals to file taxes for themselves. As you file taxes, you can indicate your relationship status, married or common-law. However, you must be with your partner for at least the past 12 months to be considered a common-law partner. This requirement becomes immediate if you have a child with your common-law partner.
How do marriage contracts affect taxes in Canada?
Marriage contracts are not just about love and making a lifelong commitment. They also have a financial aspect that many couples do not consider before signing their marriage contract. The financial aspect of marriage contracts is one of the most important aspects to consider before signing the document, as it will affect your taxes for the rest of your life.
How to update your relationship status with the CRA or Revenu Québec?
For CRA, follow these steps:
- Log in to your CRA MyAccount portal.
- Click on “Personal Profile”
- Click the Update button in the Marital status section
Alternatively, you can call the CRA at 1-800-387-1193 and inform them over the phone. If you wish to share the update via mail, you will need to fill out the RC65: Marital Status Change form on the CRA website here. Send the form to one of the tax centers closer to you.
For Revenu Québec, call 1-800-667-9625 and inform them over the phone. You may use the “Change in Conjugal Status” form available here.
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Filing your taxes in Canada as a married couple
Your marital status can certainly have a big impact on your tax return. A married couple is referred to as a family as individual incomes are combined to calculate benefits. These include Canada Child Benefit, and GST/HST credit, among others.
Before you begin your tax return, you need to update your relationship status in the “information about you” section of the tax return. You need to enter your spouse’s name, SIN (Social Identification Number), employment status, and net income. If you use a tax filing software, you must update your status at the very beginning to get the maximum benefits available to couples. While GST/HST credits are received by both spouses individually, CCB (Canada Child Benefit) is credited to one of the spouses.
What if one of the spouses has a significantly high income?
When you file as a couple, your incomes are added to form the family income. CRA or Revenu Québec usually will not allow deductions to be passed to the other spouse. However, a lower-income spouse is expected to claim the child care expenses. We list a few benefits in the next heading.
What credits or benefits are available to married couples?
As a married couple in Canada, you may be eligible for the following credits or benefits:
- If you are supporting your spouse or common-law partner, and their income was below $13,229 in 2020.
- You can combine your medical expenses and charitable donations to maximize your benefits
- If one spouse earns higher than another, they can contribute to their spouse’s RRSP
- Married couples can split their pension income
How Do Married Couples Decide on Filing Separate or Jointly?
Married couples living in Canada will have to decide whether they should file their tax returns as married or single individuals. The decision may also depend on how much each spouse earns and what deductions or credits they are eligible for. It is vital to build an understanding of the difference between the two filing statuses. If a married couple files separately, each spouse will need to complete a separate tax return and pay taxes individually. Both spouses can complete a single tax return when filing jointly and are responsible for paying taxes on the total income earned.
Disadvantages of filing taxes separately
If you are a couple, you can file taxes together to avoid the following disadvantages:
- The deductions in individual incomes may get reduced
- Some of the relevant tax credits available only to couples may be lost
- When you file as an individual, you will end up paying higher taxes
- You may experience lower contribution limits to your retirement plans
How does a divorce or separation affect your taxes?
As you end your relationship, it will likely impact your benefits and payments owed to the CRA or Revenu Québec. You need to update the change in status using the requisite forms we discussed above. CRA or Revenu Québec will accept divorce as a formal separation for married couples in Canada. For common-law partners to separate, you and your partner must stay apart for at least 90 days. When filing returns for the year couples get separated, income for the spouse or common-law partner is considered in two parts, one before separation and the other for the remaining part of the year.
In case married individuals decide to live apart yet are still married, they need to file their taxes as “married.” Living apart could arise for several reasons like medical reasons, employment, education, etc.
Choose a tax professional over software to file taxes for couples in Canada
Taxes in Canada can be complex when you file as a couple. You do not wish to pay a lot to get your taxes done, but at the same time, you do not want to miss out on any credits and benefits. While tax filing software may have some questions built in to ascertain your status and eligibility, a tax professional can assess your couple’s tax situation in a better way. And suggest the most appropriate steps to maximize the benefits of filing together. Another difference is that you don’t have to worry about all the paperwork if you hire a tax professional. They will take care of all the tedious tasks while you focus on other vital things in life.
If either person in the relationship holds US citizenship or a Green Card, filing taxes in both countries tax on an extra level of complication.
The is a strong and modern tax treaty between Canada and the United States. One of the main purposes is to protect citizens from paying tax twice. The tax treaty (along with the Totalization Agreement) does a great job, but some income types can fall through the cracks and lead to what seems like unfair taxation from both the IRS and CRA.
Get a tax professional that has great experience in both US and Canadian taxes.