By Michael Sadovnick, CA, CPA
(AJNews) – My wife and I got married back in 2009 on a warm and sunny November 8th day in Toronto. We chuppa’d, we hora’d and we ate a little too. After being married, we bought our first place and then continued on the trajectory that comes with such a simcha – getting a mortgage, kids, daycare, moving to a new city, Jewish School, and so on. But as this is a tax article, let’s discuss the tax obligations of being married.
When does one have to say they are married/common-law? Well, it is not only when you sign the ketubah; you can in fact trigger being common-law unintentionally under Tax Rules earlier (although it may not be the same for provincial family law purposes). For tax purposes, you are considered to be married after having lived together in a “conjugal” relationship for 12 months – although you can be separated by having a breakdown in this marriage and being apart for only 90 days. Of course, if you have a kid or they have custody of your kid while being in a conjugal relationship, the time can be earlier.
Now to buy that first house, I tapped into my RRSP and took out a Home Buyer Plan RRSP loan. You can borrow, interest free, up to $35,000 to help with the purchase of your first home but you will be required to pay it back over the subsequent 15 years (or include a portion in your income). If you have the time, and do not have enough in your RRSP, you can contribute 90 days before withdrawing to participate in the program (that way you can get the $35,000 and the tax deduction for the RRSP contribution).
Living in Canada, where we do not do joint tax filings, you will also notice that your name appears on your spouse’s tax return along with your income. This is not because you get to benefit from filing joint returns, but because the CRA uses several ‘family income’ based tests to determine if you are eligible for benefits…although they tax on an individual basis which gets them more money. The most significant family income tested benefit for a young family is the Canada Child Benefit which can provide families with significant funds to support their child related costs.
Next thing you need to know is that once you have a child (or adopt) you will likely incur childcare costs. Now since the tax system tries to pay out the least, there is a rule that requires the lower income spouse (assuming they are not a student or in jail) to take the deduction for the childcare costs. Once you have added up all of those childcare costs, you then have a limit of $8,000 (per kid under 7 years old) or $5,000 (per kid under 16 years old); $11,000 if your child qualifies for the disability tax credit. Many people think that the amount is tied to a child, but that is not the case. For example, if one kid has $9,000 in costs (and qualifies for $5,000) and the other has $1,000 (and also qualifies for $5,000) then you can still claim $10,000. However, if the lower income spouse does not have sufficient qualifying income (generally business or employment income) the childcare costs will not deductible.
In 2016, we moved to Edmonton with our two little kids. Like many young families who are moving for a new job within Canada, we got to claim moving expenses. This is actually a pretty generous system in that there are no caps for legitimate moving related expenses, but you can expect to be audited every time and you have to move at least 40 kms closer to your job. There are restrictions on what you can claim. For example, house hunting trips do not qualify, but the commission you pay on selling your old house (if you buy a new one) do qualify. You can also make claims for temporary living expenses (up to 15 days) and temporary meal costs (if you are passing through a Michelin Star Kosher Restaurant, I recommend you go for dinner; the CRA auditor may challenge you on this, but you should still win).
Finally, it came to take out membership at Beth Israel Synagogue in Edmonton and enroll our kids at Edmonton Talmud Torah. From Beth Israel, we received donation receipts – do not throw these out – and after our kids outgrew the ELC at Talmud Torah, more donation receipts from the school. Another great tax savings – for each dollar in charitable receipts (over a cumulative $200), you get 50% back, in Alberta, regardless of income. For those who pay the top Federal rate of 33%, they will get up to 54% back! Even better, if I had invested in GameStop and donated the shares (before it came back down) I could have avoided the capital gains tax (about 24% in Alberta at top rate) on my gain and received the donation tax credit.
But I digress… marriage is about more than just taxes right?