Marital Status Changes – Part 2 – Tax Impact

By Gwyneth James MBA CPA CGA

Last post addressed when to notify the government of a change in marital status and touched on why it’s important. This month I’ll explain the pros and cons of being a couple…from the tax point-of-view only! Remember that gender is irrelevant as is the distinction between married and common-law.

When you are a couple, there are certain non-refundable tax credits (NRTCs) that you can transfer to your spouse if your income is too low to use all of them. Examples of these are the base amount, age amount, many children-related credits, and many disability and infirmity-related credits. A couple with children also qualifies for the new Family Tax Cut if their incomes are in different tax brackets. An older couple drawing a pension or RRIF income certainly benefits from the ability to split that pension income. And finally, there are NRTCs that you and your spouse can combine, like for medical expenses and donations, to make a bigger impact.

A couple benefits the most by being a couple when one spouse out-earns the other and the lower income spouse qualifies for generous non-refundable tax credits that they cannot use.

On the other hand, since a couple’s incomes are combined to determine whether you qualify for benefits like Guaranteed Income Supplement, GST, or the Ontario Trillium Benefit they often miss out. (The Child Tax Benefit used to be in this category, but the last federal budget changed that.) Also a single parent can pay much less tax than if he or she were married because of the ability to claim an additional “eligible dependant” NRTC, but only if they have sufficient income to take advantage of it.

As always, before you rush out to get married, claim common-law or fake a separation, see a professional or at least consider all the ramifications, now and in the future.