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Tax Benefits for Married Couples in Canada

Tax Benefits for Married Couples in Canada

Marriage is one of the most eventful incidents of your life. It can change every dimension of your everyday life. This also involves all your financials being completely changing in many ways.

One of the crucial parts of your financials is the taxes. As a married couple, you can enjoy several tax benefits. Well, you do not exactly have to be married to for this. However, as a conjugal living together couple for over 12 months, you and your spouse can be eligible to enjoy these benefits.

This article will focus on the tax benefits for married couples in Canada in 2021. After reading this article, you will know everything about how taxes work when you are married and the benefits you can enjoy as married couples.

Does Being Married Affect Your Tax Rate in Canada

Being married will affect your tax rate largely in Canada. Several factors can act together when you are married. This is also true for common-law partners according to the common law Canada. 3 ways are being married can affect your tax rate. These are:

Taxable income

Everyone knows that your overall income affects the tax rate. The taxes you pay depends on how much you earn yearly. Therefore, the tax rate does not change when you are married. It is the taxable income that changes. You can claim shared benefits with your spouse or common-law partner. This can greatly affect the overall tax rate of you and your spouse.

Spousal transfers

The spousal transfer is something that can significantly affect your tax rate after marriage. Your spouse can transfer his or her non-refundable credits. This can reduce your tax liability.

There are only specific non-refundable credits that can be transferred. For instance, your spouse can transfer age amount, pension amount, disability amount, caregiver amount for under 18 children, and tuition amount to you.

This can be exemplified. Suppose your wife is eligible for a pension. She can split that pension amount with you. This can reduce the tax amount your wife owed. Eventually, both you and your wife have a reduced tax rate through spousal transfers.

Other non-refundable credits

As a taxpayer, you may be benefited from the spousal or common-law partner amount. There are non-refundable credits that can be claimed. This is an option if you have supported your common-law partner or spouse any time of the year. However, the maximum can change every year. The income of your partner also decreases.

These non-refundable credits can be claimed on your tax return, and this can include the medical expenses or charitable contributions of your spouse. In addition, you can file the non-refundable credits together. This can enable you to get a larger tax credit.

How Do Taxes Work When Married?

Marriage can greatly affect your taxes. When you are married, you will file a different tax bracket than when you were single.

Tax brackets are affected by the overall income of the household. If you file a joint tax return, the income of you and your spouse will be calculated together. This can be both beneficial and advantageous for you and your spouse.

If you are the lower earner of the house, you may find yourself paying a higher tax return. But, on the other hand, a higher-earning spouse can find himself or herself paying lower taxes than before.

What Are the Benefits of Filing Taxes as a Married Couple?

The tax benefits of marriage are numerous. There are so many ways you and your spouse can be benefitted if you file taxes as a married couple. Here are 7 benefits of filing taxes together.

Minimize RRIF withdrawal

There is a limitation of how much you withdraw from your retirement income fund. If you withdraw any more than that, you will be taxed. However, being a couple means that you can minimize the taxable amount. This can be done by claiming the younger spouse’s age.

Rollovers on your tax

This is something you may not want to think about. But your death can increase the tax return of your spouse. When you die, everything you have owned in your lifetime could be sold off. This can incur a high tax on capital gains for your spouse. If you leave those assets for your spouse, the tax return can get deferred. Therefore, your spouse can be relieved of paying extra taxes.

Transfer tax credits

You can transfer a certain amount of your tax credits to your spouse. This can be done when your income is really low. Such a situation indicates that you are not much benefited from the tax credit. As a result, provide them to your spouse.

Claim a spousal credit

You can claim spousal credit when your spouse has a below income of the minimum threshold. This is highly beneficial as it can deduct a significant amount from your taxes.

Transfer dividends

The spouse who earns lesser can get all your dividends. Transferring the dividends will allow you to pay lower taxes as a couple.

Use spousal RRSP

RRSP means Registered Retirement Savings Plan. You can reduce your retirement income by showing RRSP for your spouse. This idea can assist you, and your spouse pays equal taxes, which could be lower than before.

Splitting your pension income

As mentioned already, a spousal transfer can highly affect the overall tax rate. If you are receiving pension amount, you can transfer them to your spouse. However, there is a limit. You cannot transfer more than half of the pension income. This way, you and your spouse share the pension income and significantly save your taxes amount.

Tax Benefits and Children

Having a child can hugely benefit you when it comes to paying taxes together as a couple. This is because the child benefit you receive from the government is completely tax-free. This is a monthly allowance paid to married or common-law couples to help them bring their child.

However, there is a condition to receive the child benefits. Every year, you will have to file a tax return. If you are a single parent, you must file the return as a custodial parent.

Do Married Couples Have to File Taxes Together in Canada?

As a married couple, it always a wise decision to file taxes together. Of course, it is not like you must file your taxes together. But it is extremely beneficial for both of you. If you do not inform the Canada Revenue Agency (CRA) about your marriage, you may be fined a marriage tax penalty.

In most cases, filing joint taxes will reduce many liabilities on your taxes. However, when you decide to pay taxes together, some of the benefits you receive can get phased out. As a result, the overall tax liability decreases as you reach the maximum income threshold.

Moreover, the overall income of you and your spouse plays a huge role. Suppose your income is much higher than your spouse’s. This makes the total income of the household comparatively low. As a result, the total taxes to be paid become lower as well.

Does My Spouse Income Affect My Tax Return?

As you file taxes together as a couple, your spouse’s income will affect the tax return. We’ve already mentioned, you and your spouse’s total income will be calculated for the year’s income. As a result, the difference between the two incomes can play a decisive role.

When you earn a lot more than your spouse, the difference greatly impacts the overall tax return. This can make the total household income seem lower. But, as a result, you pay lower taxes than before.

Furthermore, your spouse earning lower than the minimum threshold can make his or her taxes completely deductible. Therefore, the total taxes become much lower in such a situation than you would have paid when your spouse had a higher income.

Conclusion

Deciding on whether to file taxes together as a married couple or not is a tough task. There are numerous things to consider before filing a joint tax return. You must trust your spouse completely to disclose everything about your income. Nevertheless, there are several tax benefits for married couples in Canada in 2021. Hire professional support to guide you and your spouse through the process.