Filing your taxes as a couple is a big step in terms of feelings—you’re doing money stuff together!—but here in Canada, filing jointly isn’t actually all that big of a step or transition.
To file jointly, there are only a few things you need to do and know. Things can become a bit more complex if there are kids involved, or depending on the tax credits and deductions you’re each eligible for, but if it’s your first time filing together, breathe a sigh of relief right now: you can do this, I promise.
Now let’s dive into the details.
When you need to file jointly in Canada
While the rules around whether you’re considered a common-law couple vary from province to province, federal tax law is clear: At 12 months of living together, or as soon as you have a child together, you’re a common-law couple and you need to file a joint return.
I know, that seems really soon, but here we are! Them’s the rules, but don’t worry: filing jointly doesn’t need to be an overwhelmingly large step for you as a couple.
How to file jointly in Canada
Unlike in some countries, when you file a tax return with your significant other in Canada, you actually still do file two returns, one for each person—so it won’t feel all that different than the way you’ve previously filed as an individual.
Most tax software will offer you two options: file two individual returns, and fill in your partner’s information on your
Whichever way you swing it, it’s almost guaranteed that you’re going to find out—to the dollar—what your partner’s net income was last year, if you didn’t know already.
PSA: What’s the difference between a tax credit and a tax deduction? In the simplest terms, a tax deduction reduces your taxable income, and a tax credit gives you a refund on the tax you owe. When you contribute to an RRSP, you get a tax deduction that lowers your total earned income for the year by the amount you contributed, which usually results in a tax refund. When you donate to charity, you get a tax credit that will refund some of the taxes you’d otherwise have to pay, but your income stays the same.
What happens when you file jointly
The biggest change, tax-wise, that you might notice is that credits you qualify for as an individual might no longer be applicable for your joint family’s income. As an example, if you currently qualify for the GST/HST credit, but your partner’s income is much higher than yours, you might not qualify for it once you’re filing together.
But here’s what doesn’t happen: You don’t get taxed on your income as a couple. If you earn $40,000, you’ll still only owe the tax you already owed on that $40,000, even if your partner earns $200,000. In some places, your family income is taxed all together, but in
(As with all tax situations, there are fun and nuanced exceptions to this where your partner’s income can impact your tax situation directly, but it tends to be the Advanced Class, like if one of you supports the other financially. If you’re both working, and this is your first time filing together, the safe assumption is that it won’t change your personal tax situation all that much.)
What you have to do when you file jointly
There are only a few “musts” when you start filing jointly as opposed to as an individual.
You need to file together once you hit common-law at the federal level, which—as we now know—is at 12 months of living together.
You’ll need to, at a minimum, add your partner’s identifying details and their net income into your personal tax return. That’s how the CRA double-checks your
Lastly, you’ll also need to pay attention to some specific rules around those credits and deductions. For some things, like claiming your child care expenses, it has to be claimed by the lower-earning partner except in specific situations, like if the lower-earning partner is in school. “Luckily,” the CRA will probably catch it and claw back some of your return eventually if you do it wrong, but that’s a scary letter to get in the mail—so make sure to do some research on what you need to know based on what you’re planning to claim, and who should claim it.
And in terms of your actual obligations, that’s really it when it comes to filing jointly in Canada. Not too bad, right? A few extra fields on your personal tax return and a bit of research? It could be way more complicated.
What you can do when you file jointly
However, you can do more than you have to do, if you want to optimize how much you and your partner get back from the government as a team. This is what I’d consider pro-level tax filing with your boo, because it involves working as a team on some bigger tax planning tasks, and really looking at money as a family affair. If you’re still “just dating” and would rather not go there yet, and you just want to be compliant and do the basics of filing together, skip this section!
When you’re ready to dive into fully shared tax returns, it’s time to look at how you can optimize your family’s credits and deductions to get the maximum amount back on your refund as a team. There are plenty of ways you can do this, but some big ones include:
- Sharing charity donations. One partner can claim the total amount donated by both people to registered charities during the year. At the federal level, you’ll get a tax credit of 15% on your first $200 on donations, and 29% on donations above that—so it makes sense to pool your donations to get the maximum credit.
- Sharing medical expenses. Medical expenses can get you a tax credit, but there’s a high threshold to hit—3% of your net income or $2,302, whichever is lower. Only the expenses above that amount will score you a tax credit, so combining your healthcare spending on one person’s tax return can be a good strategy. Here’s a list of some eligible expenses.
When you’re doing this, you’ll want to have the person with the higher income claim as many of the deductions as possible, because they have a higher marginal tax rate—for every dollar they can reduce their income using tax deductions, they’ll get a higher percentage back from the government. On the flip side, some credits, like the medical expenses credits, are best claimed by the person with the lower income.
Hold up—what’s a marginal tax rate? Your marginal tax rate is the percentage of tax you pay on every extra dollar you earn. Here’s an example using normal numbers: Let’s say you earn $100, and your tax rate on that money is 5%. You’ll owe $5 in taxes on that $100. Next year, you earn $200, and the marginal tax rate on income over $100 is 10%. You’ll owe $15 in tax that year—$5 on the first $100 you earned, and $10 on the next $100 thanks to that 10% marginal tax rate.
For advanced moves, see a pro
Listen, this is all just Filing Jointly 101—or like, possibly the high school class you take before you even get to 101. If you and your main squeeze have simple tax situations, and you’re filing jointly for the first time, you probably won’t go too far wrong with some diligent research and solid tax software. But there is literally a whole industry and field of study dedicated to understanding the tax code, and figuring out how to best optimize your situation to pay as little tax as possible over your lifetime.
There’s plenty you can do after you get the basics handled to optimize your taxes as a family, from spousal RRSPs to other advanced moves. I’m not the person to ask about those, but a CPA, CFP, or financial professional can help you plan your overall financial situation, and take taxes into account for you at the same time. If you have questions you aren’t confident answering yourself, you should work with one!