Tax Filing for Couples

Tax filing for couples is important as living as a married couple can affect the amount of federal tax you pay. Tax filing for couples has its benefits in the form of tax credits.

What’s your client’s relationship status?

› Legally married
› Common-law

Why declare?

› Declaring is mandatory. CRA will use addresses to verify a taxpayer’s status.
› Marital status and partners’ total net income are used to calculate child-related and GST/HST credits.

How to declare

› Indicate your client’s status in the return’s “Information About You” section.
› Include her partner’s name, SIN and net income on line 236, which should be the result of line 150 minus the total allowable deductions from lines 207 through 235.
› Enter an income amount, even if it’s zero.
› Or, complete RC65, Marital Status Change, and mail it to CRA in the month of the change. Separation is the exception: wait 90 days before notifying CRA.

WHAT TO DO?

1. Claim the spousal credit on line 303 if your client’s partner has less than $11,038 in income. If your client claims the Family Caregiver Tax Credit, the threshold rises to $13,078.
   • Calculate your client’s claim using Schedule 5, Amounts for Spouse or Common-Law Partner and Dependents.
2. Designate a partner to receive the GST/HST credit and child related credits.
   • These are based on adjusted net family income and CRA sends these amounts to one partner.
3. Use your client’s partner’s unneeded transferrable credits, including age, pension income, dependants, tuition or disability amounts, to lower your client’s taxes owing.
   • The lower-income partner must first claim the credit and reduce his tax bill to zero, says Sabina Mexis, director, Tax and Estate Planning, Zeifmans LLP.
4. Pool charitable donations and medical expenses to meet federal credit eligibility thresholds, and decide who will claim them.
   • Charitable Donation Tax Credit
   • 15% on the first $200 of donations and 29% for donations above that on line 340. As it’s based on donations, not income, the credit’s size stays the same, whether the higher- or lower-income partner claims it, says Johansen.
   • b. Medical Expenses Tax Credit
   • Claim expenses at least 3% of either your client’s or her partner’s net income, or $2,152 (whichever is less) on line 330.
   • Make the claim on the lower-income partner’s return to meet their lower income threshold.
   • EXCEPTION: If expenses vastly exceed $2,152, consider keeping the claims separate. Un-needed pooling is “a loss of an opportunity to reduce tax [for] the other spouse,” Mexis says.
5. Deduct your client’s contributions to her partner’s spousal RRSP.
   • Contributions to spousal or individual RRSPs are treated identically, says Mexis. Fill out line 208 of the return. (See “Warning,” this page.)
     BONUS: Spousal RRSPs allow clients to income split in retirement. So what would otherwise be a large lump sum in a personal RRSP is split between two taxpayers, explains Mexis, meaning it’s taxed at a lower marginal rate.
6. Decide which spouse will declare investment dividends. “The law actually allows you to put dividends on either spouse’s return, even if the slip is only in one name,” says Betty Johansen, partner at EPR CGA.
   • Split investment income between spouses to save tax, she suggests.
7. If your client and her partner are retired, consider pension splitting to save more tax. (See “Tax Treatment,” Advisor’s Edge Report April 2014.)a. Complete form T1032, Joint Election to Split Pension Income.b. If your client receives income from a split pension, complete line 116 of the return. If your client transfers some of her pension to a spouse, complete line 210.

• Don’t forget to claim provincial spousal credits on line 5812 of provincial Form 428.
• If your client’s partner’s income is higher than the spousal credit threshold due to Canadian dividends, you may be able to reduce your client’s taxes by reporting all of her partner’s dividends. See line 120 of CRA’s General Income Tax and Benefit Guide.
• Claim legal fees related to getting a former spouse or common-law partner to pay child or spousal support on line 221.
• If your client has a child with someone, CRA says the parents are common-law partners.

If your client’s spouse turned 71 last year, your client can’t contribute to her partner’s RRSP up to the end of the year he turned 71.

Your client can only contribute to her RRSP or to a spousal RRSP if she earned income in the previous year and has unused RRSP contribution room.

Your client’s deposit counts against her own contribution room. Keep track of all accounts to avoid over-contributing.

Any withdrawals from a spousal RRSP must be made three years after the contribution, or it will be taxed in the contributor’s hands.

Sources: Betty Johansen, CGA, partner at EPR CGA; Sabina Mexis, director, Tax and Estate Planning, Zeifmans LLP; and CRA.