Marriage & Taxes: Couple’s Guide to Taxes

In Canada, the tax system is based on individual income, meaning each spouse is responsible for filing their own tax return. However, there are several aspects of tax law that are relevant for married couples:

1. Filing Taxes:

• Married couples must file taxes separately, but they should be aware of certain tax benefits available when their incomes are pooled.
• Tax returns are filed annually using T1 General forms.
• Each spouse must declare their own income and deductions, but there are ways they can benefit from one another’s tax situations.

2. Tax Benefits for Married Couples:

• Spousal Tax Credit (Spouse Amount):If one spouse earns significantly less than the other or has no income, the higher-income spouse may be eligible for a spousal amount tax credit. This reduces the amount of taxable income of the higher-income spouse.
  For the 2025 tax year, the spousal amount is $14,398 (this may change annually). This credit applies when the lower-income spouse’s income is below this threshold.
• Income Splitting (Pension Income Splitting):If one spouse has significant pension income, they can split up to 50% of eligible pension income with their spouse to lower the overall tax burden. This helps reduce the tax liability by lowering the amount of taxable income in the higher-income spouse’s hands.
• Family Tax Credit (Canada Child Benefit, CCB):The Canada Child Benefit (CCB) is a tax-free monthly payment made to eligible families with children under 18 years old. The benefit is based on family income, so a higher combined family income may reduce the benefit amount.
  Couples are encouraged to update their income status with the Canada Revenue Agency (CRA) to ensure accurate payments.
• Medical Expenses:Medical expenses can be claimed by one spouse. The couple can combine all medical expenses in a single claim, which may be beneficial in terms of the medical expense tax credit. The medical expenses must exceed a certain percentage of the household income to be deductible.

3. Transferable Tax Credits and Deductions:

• Canada Pension Plan (CPP) Contributions:When one spouse has low income, they may not reach the maximum contribution for the Canada Pension Plan (CPP). The other spouse can make contributions on behalf of their lower-income spouse.
• Registered Retirement Savings Plan (RRSP):Spouses can contribute to each other’s RRSPs to reduce their taxable income. The contributing spouse gets the deduction, but the receiving spouse will pay tax on the income when withdrawn.

The spousal RRSP can be an excellent strategy for income splitting in retirement.

4. Tax on Support Payments (Alimony or Child Support):

• Child Support: This is not taxable or deductible. The recipient does not include it in their taxable income, and the payer cannot claim it as a deduction.
• Spousal Support: In contrast, spousal support is deductible by the payer and must be included as income for the recipient. If the support agreement is registered with the CRA, it’s easier to ensure that both parties follow the tax rules.

5. Tax Implications on Marital Status Changes:

• When a couple separates or divorces, it’s important to inform the CRA about the change in marital status. This can affect tax credits, benefits, and the way each individual files their taxes. A separation can affect eligibility for certain credits, and it may also lead to changes in tax deductions (e.g., spousal amount).

6. Tax Implications of Joint Property:

• If a couple owns property together (e.g., a home or rental property), there may be tax implications when the property is sold, depending on whether it is a principal residence or rental property. The principal residence exemption allows Canadians to sell their primary home without paying tax on any capital gains, but this only applies to one property per family unit in any given year.

7. Tax Considerations for Same-Sex Couples:

• Same-sex couples in Canada are subject to the same tax laws as heterosexual married couples. This includes eligibility for tax credits and deductions for a spouse or common-law partner, as well as tax treatment on income splitting, family benefits, and spousal support.

8. Common-Law Couples:

• Common-law partners are treated similarly to married couples for tax purposes. If you have lived together in a conjugal relationship for at least one year, or if you share a child, you are considered common-law for tax purposes.

Conclusion:

While married couples in Canada file separately, the tax system provides various ways they can reduce their overall tax burden. By making strategic use of spousal credits, income splitting, and deductions, couples can minimize taxes and benefit from available credits. Be sure to file your taxes accurately and take advantage of credits that apply to your specific situation.

It’s always a good idea to consult with a tax professional for personalized advice, especially if your financial situation involves complexities such as significant differences in income, shared business interests, or rental properties.