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How Does Marriage or Living Common-Law Impact Taxes in Canada?

If you are recently married or have recently entered into a common-law relationship, understanding potential changes in taxation and tax return filing requirements can be confusing and frustrating. This article is here to provide information on some common taxation related issues for married or common-law couples in Canada. It also lists some tax benefits for married couples in Canada that you may wish to know.

Defining the Terms “Married” and “Living Common-Law” in Canada

In Canada, “married” means that you have a spouse and the term only applies to a person you are legally married to.

On the other hand, “living common-law” means that you are living in a conjugal relationship with a person who is not your married spouse and at least one of the following conditions applies:

  • The person has been living with you in a conjugal relationship for 12 continuous months or more (includes any period you were separated for less than 90 days because of a breakdown in the relationship).
  • This person is the parent of your child by birth or adoption.
  • This person has custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on them for support.

Source: Marital status page from the Official website of the Government of Canada.

It is important to note that what is defined as “common-law” in Canada varies between the federal government and individual provinces, and there may be significant differences between what the Government of Canada and that of each individual province require to qualify for this status. As well, provincial rules regarding child custody, property, and taxes can vary from province to province.

How Do I Let the Canadian Revenue Agency (CRA) know that my Marital Status has Changed?

By the end of the following month after your marital status has become “married” or “living common-law,” you must tell the CRA about your new marital status.

You can change your marital status with the CRA online, by phone, or by mail. The CRA will recalculate your benefits based on your new marital status and adjusted family net income. The adjustment will start the month after your marital status changed.

Source: Update your CRA information: Change your marital status page from the Official website of the Government of Canada.

How to File Taxes if You are Married or in a Common-Law Relationship

Unlike the United States, Canadian tax rules do not allow married or living common-law couples to file a joint personal income tax return. Canadian couples file separate tax returns and receive a separate tax bill or tax refund. Each individual files their own tax return and indicates their marital status along with their partner’s information, including his or her name, social insurance number, employment status, and net income.

Tax Benefits for Married and/or Living Common-Law Couples in Canada

Some tax benefits for married and/or living common-law couples in Canada include:

  1. Spousal Tax Credit: If your spouse or common-law partner has lower income, you may be able to claim a spousal tax credit to reduce the amount of income tax you’ll need to pay overall.
  2. Pooling Charitable Donations: You can pool your charitable donations (to registered charities) with your spouse or common-law partner, with the higher income partner claiming the associated tax credits to reduce taxes at a higher rate.
  3. Pooling Medical Expenses: If your spouse or common-law partner has lower income, you may be able to receive a larger tax credit if the partner with the lower income claims all of the medical expenses for the couple.
  4. Pension Income Splitting: You may be able to split your eligible pension income with your spouse or common-law partner to lower the amount of tax you must pay.

For more information, please visit the Living as a Couple page from the Official website of the Government of Canada.

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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.

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