This is part two of our five-part #TaxWeek series on everything you need to know about filing your return this year. Here's a recap of the entire series.
I’ve always found doing my taxes to be a great date night. Me, my partner, a glass of wine and some sweet, sweet tax documents — what could be better?
You might be rolling your eyes right now, which is an entirely reasonable reaction. But if you’re in some kind of Serious Relationship, heads up: your partner might be more involved in your tax situation than you think they are. Especially if you’re living together, married or recently divorced.
I woke up to this fact recently when I realized that in the eyes of the Canada Revenue Agency (CRA), I’m common-law married.
Not only that, but I have to tell them that my marital status has changed, which is all kinds of weird, since there are zero rings or betrothals involved here. Just a shared dog who I’m not allowed to claim as a dependent. (I checked.)
I found all of this out from two official tax experts I got in touch with to help me — and you! — navigate tax season alongside our common-law partners and spouses, and figure out how to file our recently-divorced taxes, too.
Both experts have some great advice about what you need to know when it comes to living together and taxes.
Actually, you might be common law
“Regardless of what the law says provincially, tax law is federal, and by Canada's standards, you are common law after living together continuously — and conjugally — for one year,” says Janine Rogan, a tax specialist and personal finance blogger.
I’ll pause for gasps of surprise.
I woke up to this fact recently when I realized that in the eyes of the CRA, I’m common-law married
If you’ve just realized your partner is your common-law spouse in the eyes of the tax humans, here’s what to do about it. “You need to update your status with the CRA as soon as you become common law. This will affect your qualifications for rebates and incentives from the government,” advised Rogan.
Specifically, you’ll need to login to your CRA account online and update your marital status, or go low tech and mail them a form. It’s Form RC-65 if you were considering mailing it in, Grandpa.
Filing advice for common-law couples
Luckily, becoming common law isn’t a big tax complication. If your individual tax situations are fairly straightforward, filing together should be too.
“In Canada both individuals file separately, so becoming common-law wouldn’t complicate things. There can be a benefit when sharing deductible expenses such as donations, medical expenses, or tuition credits,” says Rogan.
So if you think you can pool your credits to get a bigger return, it might be worth sitting next to each other while you file your taxes. And no, there’s no need to freak out and run to a tax expert just because you’re filing as a couple.
And what if you’re officially married?
Well, the first perk is not having to have the awkward “Surprise, we’re tax-married!” conversation with your live-in boyfriend. But there are plenty of other tax-time perks that are available to married couples.
I spoke with Ed Rempel, CPA, CMA, CFP, a blogger and fee-for-service financial planner, about what tax time might look like for married couples.
“Some couples save tax being married and some pay more,” Rempel advised right off the bat, so no, there really aren’t any quick and easy tax answers. How much you’ll save — or owe! — is entirely dependent on your personal situation.
“You may lose monthly income from GST or Canada Child Benefit, and daycare must be claimed by the lower income earner if you have kids,” says Rempel. “You can only claim one principal residence, and the Trillium Benefit may be smaller when you’re filing together.”
There can be a benefit when sharing deductible expenses such as donations, medical expenses, or tuition credits
Luckily, that’s just the not-so-good news.
“On the plus side, you may be able to claim your lower-income spouse as a tax credit, you can transfer some other credits you can’t use to your spouse, and you can plan to combine donations, medical expenses and other deductions.”
Rempel also notes that there are advanced tax maneuvers available to you as a married couple, including spousal RRSPs, splitting business income, and more.
Since the biggest money questions for me always come back to the day-to-day, I made sure to ask: will how you share spending on a regular basis impact you at tax time?
“Sharing expenses does not make a difference, except for some sophisticated income splitting strategies. For most couples, you can just use one or two chequing accounts based on whatever you prefer — it won’t impact your taxes,” says Rempel.
What about the D-word? (Divorce, don’t be gross)
While it’s even less romantic than my tax-filing date idea, divorce is a reality of life for some couples. If you’re in that camp, it turns out that cooperation may still be the name of the game for you and your former spouse when it comes to your taxes.
“Coordinating taxes between former spouses can save both a lot of tax,” advises Rempel. “Spousal support payments are generally taxable to the recipient and deductible by the paying spouse if structured properly, which in most cases is a form of income splitting.”
Don’t even think about trying to claim benefits twice, either. Rempel gives a great example to illustrate why, and says ”If you and your spouse both claim the children as a tax credit, the CRA just denies the tax credit for both parents.”
From what I hear about filing taxes with children, that’s not a benefit you or your former spouse want to give up.
Illustration by Taryn Gee.