If you and your significant other have shared a home address for 12 months or have a child together, then you should prepare and file your taxes together.
While many young Canadians living together with a partner may not know this, it is an essential step to take. Sure, you split the rent, share the groceries and take turns doing the chores, but when it is tax season you should step it up a notch.
Another thing to note is that even if you do file tax returns together, you can still file your own individual return. The Canadian law has separate definitions of the term ‘marital status’ that could help you decided whether to go the joint tax filing way or not.
A spouse is defined as “someone you are legally married to.” While a Common-law partner is someone you are living in a conjugal relationship with.
The latter is defined as “You have a common-law partner if you are living in a conjugal relationship with someone who is not your spouse and at least one of the following applies – you have been living together for at least 12 continuous months (this could include any period you were separated for less than 90 days because of a breakdown in the relationship) – he or she is the parent of your child by birth or adoption – he or she has custody and control of your child (or had custody and control right before the child turned 19) and your child is completely dependent on that person for support).
A separation is considered one only after a period of 90 days. A separation of fewer than 90 days is not considered separation for child and family benefits.
While you may have heard some scary tales about joint tax filing, it is not as bad as you imagine. There are many benefits you can get from filing jointly, the most important being that you can share tax credits. Tax credits can help reduce the amount of tax you owe. This is unlike a tax deduction, which lowers your income and saves taxes based on your income and marginal tax bracket.
You can reduce your household taxes once you start pooling together receipts. Start storing receipts for household refunds. There are many pros and some cons as well. Here are some pros. Various types of receipts can be filed jointly. They include
Donations you make can be qualified for a tax credit. The first $200 of charitable donations qualifies for a 15 per cent tax credit, and every dollar above $200 gets a 29 per cent credit. These donations are good to be filed jointly as the total amount will increase and thus raise the total credit that can be claimed.
Transit expense is applicable if both you and your partner take public transit and have monthly passes, you can get a bigger return when you pool them as household expenses.
Medical expenses have to add up to more than 3 per cent of your net income. Pooling is very helpful here as the partner with lower income can claim the total household medical expenses and thus become more likely to qualify to claim the expenses.
If your partner is still in school, you can use that to lower the household tax burden as the student can transfer unused tuition credits worth $5000 to the higher-earning partner.
While all of these are pros to benefit from filing taxes jointly, you should note that there are some cons too.
The three main cons are that you may not qualify for the GST/HST rebate anymore, your student loans repayments could increase, and if you, unfortunately, end up breaking up with your partner then you will now have to deal with the paperwork apart from a broken heart.
Remember that in Canada, returns are coupled together during preparation and filing, your partner’s name, social insurance number and net income should be on your personal tax return. Also, be aware that you could be reassessed if it is later realized that you have been living together but not disclosing this in your tax filings.
As tax season approaches are ready to tackle it as a team!