Should my spouse and I file our tax returns together, or separately?
Spousal tax returns are always filed separately - that is, the tax returns
are prepared separately. However, when tax returns are prepared using personal
income tax return software, most software will give the option of "coupling" the
preparation of both returns. The returns are still printed and filed separately,
but the software will usually highlight ways in which taxes may be reduced.
You must report the name, social insurance number and net income of your spouse
or common-law partner on page 1 of your tax return, in order to claim some tax
credits.
Claiming tax credits and deductions
If one spouse is unemployed or has very low earnings, the other spouse can
claim a spousal tax credit. See the tables of non-refundable personal tax
credits for the federal and provincial territorial amounts of the spousal tax
credit.
There are some tax credit amounts which can be combined and claimed on either
spouse's return:
- Medical expenses - see the article on the medical expense tax credit - expenses for both spouses should be combined and claimed on the tax return of one spouse. It is often better to claim all medical expenses for both spouses on the return of the spouse with the lowest taxable income.
- Donations for both spouses should be combined and claimed on the tax return of one spouse, because the tax credit for the first $200 of donations is at the lowest tax rate. See the article on the donations tax credit .
The deduction (not tax credit) for child care expenses must generally be
claimed on the tax return of the spouse with the lowest net income.
If one spouse (or common law partner) cannot use all of the following tax
credits, they can be transferred to the other spouse:
- age amount
- disability amount
- pension amount
- tuition and education amounts
Transfer of Income From taxable Canadian Dividends
A taxpayer who is entitled to the spousal tax credit for his/her spouse or
common-law partner may include all of the spouse's dividends from taxable
Canadian corporations in his/her income. This option is only available if doing
so will increase the spousal tax credit.
There is no special form to fill out to do this. The spouse's dividends would
just be included on the taxpayer's income tax return.
Transferring the dividends may not always be beneficial. Taxes payable should be
calculated both ways (with and without the transfer), in order to determine
which method results in lower taxes.
If the spouse has incurred deductible interest expenses in order to earn the
taxable dividends, the interest expense deduction is not transferred to the
taxpayer. It may be used by the spouse to reduce other income. If the interest
expenses exceed other income, a non-capital loss is created.
Other Investment Income
When investments are held in a joint account, the investment income should be
reported based on the funds contributed to the account by each spouse. If the
funds were provided equally by both spouses, then the investment income would be
split equally. This subject is covered in the Canada Revenue Agency (CRA) web
page
Line 121 - Interest and other investment income, under the topic of Bank
accounts.
In order for the lower income spouse to be able to claim more investment income,
finances should be arranged so that the lower income spouse has money to invest.