Love and taxes: Canadians confused on how marital status impacts deductions, credits

This Saturday is Valentine’s Day — that greeting-card-inspired celebration that turns up the heat on romance and inspires mad gestures of chocolate and roses.

It also happens to fall smack in the middle of tax season. And, believe it or not, the Canada Revenue Agency is almost as interested in your relationship status as your mother is.

It’s not uncommon for taxpayers in Canada to be confused about the tax rules and how they intersect with our love lives.

A recent survey by Leger, on behalf of H&R Block Canada, found that more than half of us mistakenly think that married and common-law spouses can file a joint return to save money on their taxes. Another 40 per cent believe it’s up to us to decide whether to claim our marital status on our tax returns, while a handful of respondents doubt the CRA has guidelines to determine that status.

Truth is, there are rules around romantic partnerships, lots of them, and failing to fully comprehend the finer points could cost you money and get you into plenty of trouble.

Know the rules

“Your marital status can have a major impact on your return so it is important to understand how to claim it correctly so you don’t miss a thing,” says Caroline Battista, senior tax analyst with H&R Block Canada.

First things first: A joint tax return is something that Americans file. In Canada, tax payers file individually, whether they are living in a common-law relationship or married.

That doesn’t mean you file as a single person. Couples are required by law to check the correct status box in tax forms.

Family incomes in Canada are not combined for the purpose of calculating tax; however, they can be for the purpose of calculating income-tested benefits, such as the GST/HST credit or the National Child Benefit supplement.

Couples also stand to benefit from combining their charitable donations, transit passes and medical expenses.

And, new this year, parents of children under 18 years stand to gain from a newly announced federal tax credit. Often referred to as the “family tax cut”, the new measure allows a higher earning spouse to transfer in kind up to $50,000 in income to his or her spouse in order to collect a tax credit of up to $2,000.

“That is the biggest benefit we have right now,” says Jamie Golombek, managing director of tax and estate planning for CIBC Wealth Advisory Services.

Of course, that’s not all couples have on the line.

Canadian taxpayers are required by law to answer the marital status question correctly.

“If you lie, it’s tax fraud,” says Golombek.

What about common-law relationships?

To be considered common-law, two people must live together in a conjugal relationship for 12 months or immediately if you have a child together. If you receive benefits you are not entitled to because of an incorrect marital status, you can bank on being asked to repay them.

Battista agrees that Canadian tax rules can be confusing, noting, “We watch a lot of American television. You don’t get that things are different up here.”

She recommends couples file their taxes at the same time in order to take full advantage of all the benefits and credits available. With the April 30 filing deadline looming, don’t wait until the last minute.

“You don’t want to leave any money behind,” Battista says.

One final misconception: About 44 per cent of Canadians believe that once you are divorced, you can claim as single the following year. But once you have filed as married, you can never claim single. You are instead classified as separated, divorced or widowed.