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Tips and tricks for Canadian tax filers at every stage of life from UFile's tax expert Gerry Vittoratos



Discover the tax advantages (and disadvantages) of getting married

by UFile Team Équipe ImpôtExpert | Feb 05, 2019   Comments:

UFile blog - Getting married

Congratulations on your big day! Making the decision to share your life with someone is a huge step, and many things will change for you. How does it affect your tax return though? Let’s find out!

Sharing more than a house

On top of sharing a house with your spouse, you can now also share or transfer certain amounts on your tax return. Either one of you can claim the medical expense credit for your combined expenses. This can be advantageous because the credit is determined by reducing your combined expenses by 3% of your individual net income. If the lower-income spouse claims the medical expenses, you can maximize the credit. Donations, another non-refundable tax credit, can be pooled in one spouse’s tax return; if one spouse no longer needs this credit to reduce their taxes to zero, the other can claim the donations.

If one spouse’s income is low, the other spouse can claim them as a dependent with the spousal amount credit provided that the lower-income spouse earned less than $11,800 (as of 2018). You can even increase the spousal amount credit if some of the income received by the lower-income spouse is in the form of dividends; in this case, the dividends (a tax-preferred source of income) can be transferred to the tax return of the higher earner to maximize the spousal amount credit. In the same vein, you can help build the retirement account of your spouse with low income by contributing to their RRSP and using the deduction yourself. The amount of your contribution will be subject to your own RRSP limit, and your spouse should not withdraw from these funds in the next two calendar years or a good chunk of the income will be attributed back to you.

Guilt by association

We’ve seen some of the advantages of getting married, tax-wise. But are there also “negative” consequences? Certain amounts claimed, such as the GST credit and the Canada Child Benefit, will now be determined based on your combined income and therefore get reduced as this income increases. If you were claiming these amounts before you got married, the addition of your spouse’s income is likely to reduce what you receive. The same can be said for the Working Income Tax Benefit (WITB), for instance, which is also based on combined income and gets reduced as your income increases.

Another potential negative consequence can come with the purchase of your first home. It may be the first home that you buy, but if your spouse was a homeowner in the last four calendar years, you can no longer pull money out of your RRSP to use as a down payment under the Home Buyer’s Plan (HBP) and you can’t claim the Home Buyer’s amount either as is it subject to the same criteria as the HBP. Talk about being punished for expressing your love!

Love in the twilight years

You now have an idea of the short-term effects of marriage on your tax return, but what about later on? Here comes the pension income split! When you reach retirement, you will be able to split your pension income with your spouse. This is done by simply having the lower-income spouse declare up to half of the pension income received by the higher-income spouse on their tax return. This way, the income can be taxed at the lower tax rate enjoyed by the lower-income earner which results in savings for the couple. It's actually a pretty good deal from the taxman for the years you will cherish each other the most!

Have more questions about the fiscal impact of getting married? Connect with us on Facebook and Twitter for news and updates on the 2018 tax return and UFile online tax software. Visit Tax & U to get accurate answers to all your questions about your 2018 tax return.

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