When to file tax returns as a couple
In Canada, there are no “joint” income tax returns — each taxpayer much file his or her own return. However, you must declare on your return if you have a spouse, which for the purposes of tax filing is any of the following:
- A person to whom you are legally married;
- A person you have been living in a conjugal relationship with for 12 months or more; or
- A person you live with and have a child with (either by birth or adoption).
Watch the video below to learn more about common law versus marriage and how your marital status can affect your taxes.
If you have a spouse, it’s a good idea for the two of you to prepare and file your taxes at the same time. That way, you can be sure to get the most out of all the tax credits and deductions you’re entitled to, and receive any benefits on a timely basis.
More: Tax credits vs. deductions: which can you claim?
For example, the GST/HST Tax Credit and Canada Child Benefit are each based on the combined income of both spouses, so filing at the same time will avoid delays in assessments and payments.
Spouses should also take the following steps to maximize their credits and deductions, as explained in more detail below.
Claim a spousal tax credit
Everyone is entitled to earn a Basic Personal Amount of income without having to pay tax on it. For the 2022 tax year, that amount is $14,398 federally (increasing to $15,000 for 2023). If one spouse earns less than that basic amount, the other spouse is entitled to claim the difference in the form of a non-refundable spousal tax credit, which will lower the amount of federal taxes owing.
For example, say your spouse is a student and had part-time earnings of $6,000 in 2021, while you are working full-time with an income of $75,000. Because your spouse’s income is less than the annual threshold, you are entitled to claim the Spouse or Common-Law Partner amount as a non-refundable tax credit. The amount you can claim is equal to the difference between the annual threshold and your spouse’s net income.
If, in our example, your spouse had contributed $1,000 to an RRSP in 2021 and had no other deductions, their net income would be $5,000 and you could claim $8,808 as a non-refundable tax credit. Since the federal non-refundable tax rate is 15%, this line item could reduce your federal tax bill by about $1,321.
Note that the spousal tax credit — and most of the credits listed in this article — also have corresponding provincial amounts that can be claimed on your tax return, which can save you even more in taxes.
Combine tax credits
As a couple, you are allowed to pool some of your expenses so one spouse can claim the total tax credit. This is beneficial in a number of ways:
- Some tax credits provide a larger deduction when a set threshold is crossed (e.g., charitable donation tax credit). You get a tax credit of 15% on the first $200 of charitable donations claimed, but your credit goes up to 29% for claims over that amount. By combining your charitable donations with your spouse, you can much more easily cross the $200-limit and access the larger deduction, so you’ll save more.
- Some tax credits are difficult to qualify for based on just one individual’s expenses (e.g, medical expenses). While many out-of-pocket medical costs, including prescription medications, dental services, extended health insurance coverage, etc., may be claimed, the total of these expenses must exceed $2,424 for 2021 (or 3% of your net income, whichever is higher) before you qualify for a credit. By combining these expenses with your spouse, you are more likely to exceed that minimum and obtain a tax credit.
- Because non-refundable credits can only reduce taxes that are owed (and any excess credit amount is lost), it is important to designate such claims carefully to maximize benefit (e.g., home-buyer’s amount). For example, if you and your spouse bought a qualifying home in the past year (and you have not lived in a home owned by either of you for the past four years), one of you can claim a $5,000 federal non-refundable tax credit, or you can split the credit between the two of you. Your personal circumstances, including respective incomes and taxes owing, will determine which option is more advantageous for you. For instance, if we go back to our example above where your spouse is in school and earning less than the Basic Personal Amount for 2021 (and therefore does not pay any income tax) while you have annual earnings of $75,000, you should claim the entire $5,000 credit, which would reduce your federal tax bill by $750.
More: Canada's first-time home buyer incentive
Transfer unused tax credits
Similar to the above, if you or your spouse cannot make full use of certain tax credits, you can transfer the unused portion to each other to lower total taxes owed. These include the following credits:
- Tuition Amount: If you or your spouse paid tuition to a post-secondary institution (or any other eligible educational institution) in the past year, you can claim a credit of up to $5,000. While the spouse who took the course(s) must first use enough of the tuition credit to reduce their own tax bill to zero, any unused credits, up to a maximum of $5,000, can be transferred to the other spouse.
- Disability Amount: A person with a disability can claim a non-refundable tax credit of up to $8,576 for the 2020 tax year. (The maximum amount for the 2021 tax year has not yet been announced.) If that person cannot make use of the full credit, they can transfer the balance of the credit to their spouse to claim instead.
- Age Amount: Individuals age 65 or older may be able to claim the age amount up to $7,713 for the 2021 tax year, if their 2021 income is less than $90,313. If you qualify for the credit but your spouse earns too much and does not qualify, you can claim both your own amount and theirs (under “Amounts transferred from your spouse or common-law partner”). This could potentially lower your tax bill by up to an additional $1,157.
- Pension Income Amount: Taxpayers may claim up to a $2,000 non-refundable tax credit on eligible pension income. If they can’t use the full amount, they can transfer the credit to their spouse.
Equalize retirement income
Since Canada has a progressive income tax system — you pay a higher rate of tax as your income rises — an effective tax management strategy is to divide retirement income as equally as possible between spouses. There are a couple of ways to do so:
- Split Pension Income: The higher income spouse can designate a portion of their eligible pension income to a lower-earning spouse, which may land them in a lower tax bracket.
- Contribute To a Spousal RRSP: Although it will decrease your RRSP contribution room, it might make sense to put money into your spouse’s RRSP, if they have a lower income than you. Again, this will give you a tax advantage when you withdraw those taxable funds during retirement.
More: Should you put your savings in TFSA or RRSP?
Optimize your returns with tax software
If combining, transferring or claiming all of these tax deductions and credits with your spouse sounds confusing, consider using tax software that automatically maximizes these claims for you. TurboTax, for example, features optimizers for pension splitting, charitable donations, medical expenses, and more.
Receive up to a 15% discount with our Money.ca link on TurboTax.
For a thorough comparison of the various free and paid tax software options available in Canada, see our article Best Tax Return Software and learn which is best for your tax needs.
The final words
While couples who often benefit the most from many of these tax breaks are those where one spouse earns significantly less than the other, don’t assume you won’t see any savings if you and your partner earn about the same amount.
Even couples with equal incomes may see the amount of tax they owe diminish by sharing credits and deductions — and tax software that has an optimizer feature will automatically show you exactly where and how much you’ll save.
At the end of the day, you don’t want to pay the taxman more than he deserves.
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