Perhaps unsurprisingly, a recent study from the Institute of Marriage and Family Canada has confirmed what most Canadians already know -- that there's a big economic advantage to being married.
According to the study, 86 per cent of high-income families include a married or common-law couple compared to 49 per cent of the middle class and 12 per cent of low income earners. Married people report being happier, they tend to live longer and save more for their retirement.
Relationships, whether it is getting married, living common law or ending a relationship, all have tax implications.
"A lot of people may not be aware of what actually constitutes a couple and may not know that you must report any change in your marital status on your tax return, whether you are recently married, divorced or have entered into a common-law relationship," says Christine Van Cauwenberghe, assistant vice president of tax and estate planning with Investors Group. "It is imperative that you declare any change whether you are entering or ending a relationship."
In Canada, spouses and common law partners of the same or different gender are treated the same when it comes to taxation.
A spouse is the person to whom you are legally married and you are considered to be common law partners if you have lived together as a couple for a period of 12 months. In both cases each person must file a tax return.
As a couple you may transfer certain tax credits to your spouse including the age, pension income, charitable donation, disability and Canada child tax credits, and married and common law couples can transfer assets when they die to their partners without paying capital gains tax.
Perhaps the biggest tax advantage for couples is with their retirement savings plans. Through a spousal RRSP you can make contributions to your spouse's plan instead of your own if you know that they will be in a lower tax bracket in retirement, you can benefit from income splitting opportunities in retirement and even split Canada Pension Plan benefits.
There are some potential disadvantages which new and long-time couples also should be aware of.
For example, each family unit is allowed only one principal residence exemption, so if both parties coming into a relationship have a home, only one can receive the principal residence capital gains exemption.
When you marry or enter into a common law relationship your incomes are added together and you may be in danger of losing some benefits such as the Canada Child Tax Credit for a minor child and the Guaranteed Income Supplement (GIS) and HST tax credit.
"These are some of the reasons common law partners might not want to notify the CRA on their returns about their new status," says Van Cauwenberghe. "This can really trip people up. You've got to be sure to notify the government about changes to your marital status because it is a serious offense to file a fraudulent return."
In the case of separation the net family property and assets such as the home, other real estate holdings, banks accounts, financial investments and retirement plans are divided between the former couple, although the rules vary between provinces. Divorce is the legal ending of the marriage while for tax purposes a separation generally takes place when the couple live apart for a minimum of 90 days without reconciliation.
The transfer of RRSPs and RRIFs in a relationship breakdown usually takes place on a tax deferred basis provided the money remains in the plans. In the case of a breakdown in a common law relationship, depending on the province, only those assets owned jointly have to be divided, although a number or provinces have amended their legislation to give the common-law partners the right to a division of all assets acquired over the course of the relationship.
More and more Canadians are divorcing or separating and finding themselves single in retirement, which creates a unique set of financial and emotional challenges. Figures from Statistics Canada indicate that approximately 4,000 Canadians aged 65 and over get divorced each year.
"When divorcing or exiting a relationship it's really important to make sure you know the rules and ensure that the assets involved are transferred tax efficiently," Van Cauwenberghe says. "The key is to be sure to contact Service Canada and tell them about your new status when you are entering into or exiting a relationship."
Talbot Boggs is aToronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.
