# tax efficiencies after marriage?



## joncnca (Jul 12, 2009)

i just got married this year, and will be filing taxes next year with my wife. are there any glaring tax efficiencies that i can avail myself to, given our new marital status?

also, she went from working full time to part time this year. any significant implications that i should be aware of? i may be able to contribute to her RRSP, but her limit is usually low anyway because her pension uses up the contribution room.

thanks!


----------



## kcowan (Jul 1, 2010)

Until you have children, there are no savings beyond the 2 can live as cheaply as 1 myth.

But make sure that the low income earner gets all the medical deductions from both and the maximum RRSP donation.


----------



## FrugalTrader (Oct 13, 2008)

If you guys are big into charities, you can combine the donations to surpass the $200 threshold and get a bigger tax credit.


----------



## OhGreatGuru (May 24, 2009)

joncnca said:


> ... i may be able to contribute to her RRSP, but her limit is usually low anyway because her pension uses up the contribution room.
> 
> thanks!


Try to do a projection of future retirement income, although it may involve a lot of guesswork this early in your married life. It is ususally desirable to try to balance future retirement income to minimize taxes, although the ability to split pension income has redcued the importance of this.

Contributing to "her" RRSP using her RRSP room will not reduce *your* taxes - it will be deductible from her income. But you can create a spousal RRSP with your contribution room. The contributions are deductible from your income, but withdrawals wil be taxable in her hands.


----------



## joncnca (Jul 12, 2009)

2 certainly do not live as cheaply as 1, haha...and it seems that among canadians these days, often 1 does not even live as cheaply as 1.

children may allow for the child benefit? but i imagine that would hardly offset the expense of having the child.

i assume that having the lower earner claim all medical deductions is because the credit is calculated on uninsured amounts in excess of the lesser of about $2000 and 3% of net income? thankfully we don't have any big medical expenses right now, and we have some pretty decent benefits, but will keep in mind.

she maxes out RRSP every year because of the low contribution room (b/c of pension). i get close between employer matched RRSP and my borrowing to invest and repaying loan with tax return.

combining charitable donations is a good idea, i gues it doesn' tmatter who claims as it's based only on the lowest and highest tax brackets for the tax year?

that's a interesting distinction about the spousal rrsp. so then in effect, i would have to open a separate RRSP account in her name, contribute to it, claim contribution using my contribution room, and indicate on the tax return that that portion is for my spouse?

in theory, could i keep the spousal RRSP in the same account as my RRSP, and just keep track of it on paper, or does this make it a lot messier?

a coworker of mine filed jointly with his new spouse for the first time last tax year, and he said that he ended up getting a couple thousand dollars back (gasp) just for filing jointly. when he called CRA to ask about it, they said it is something given to couples as encouragement for filing jointly, as this increases the efficiency for CRA........i found this dubious, did he misunderstand? 

i would assume the extra return was because she only works part time, and i think she reduced her work even more as they were expecting a baby, and because it was his first time filing jointly, there was a spousal tax credit given her low income, which reduced his taxes payable, and after other credits/deductions, ended up giving him a bigger tax return....this makes more sense to me than a "thank you" gift from CRA for filing jointly...ya?


----------



## financialnoob (Feb 26, 2011)

Depending on how part-time she's working, you're also eligible to claim the unused portions of her basic personal amounts.


----------



## Maybe Later (Feb 19, 2011)

I find for us the biggest difference is optimizing RRSP between personal and spousal accounts to both maximize deductions today and balance income tomorrow. I am in a higher bracket than my spouse and since we are not maxed out quite yet I contribute enough to the spousal account to bring me to her tax bracket and then carry forward the rest to next year. Any extra RRSP contributions are made in her name since our incomes won't equalize in the next few years. Despite income splitting our goal is to have roughly equal amounts over time in my retirement accounts and hers. Who knows when things may change?

Tuition credits can be transferred for some. You can also now combine medical expenses over a 12 month period to see if you can qualify for a deduction there. You can shift those 12 months to your advantage, but I don't recall the details. 

A spousal RRSP is in the account holders name (your wife in your example) despite who contributes to it. It is indicated in your annual tax forms if the contribution was made by you or your spouse. So it can't be included in your own RRSP and tracked yourself.


----------



## FrugalTrader (Oct 13, 2008)

Jon, the charitable tax credit is just that, a credit. The first $200 is offered a tax credit equal to the lowest tax bracket in your province, everything after is calculated at the highest tax bracket. Thus the advantage of combining donations to get over the $200 hump.

How the Charity Tax Credit Works


----------



## OhGreatGuru (May 24, 2009)

joncnca said:


> ...
> 
> a coworker of mine filed jointly with his new spouse for the first time last tax year, and he said that he ended up getting a couple thousand dollars back (gasp) just for filing jointly. when he called CRA to ask about it, they said it is something given to couples as encouragement for filing jointly, as this increases the efficiency for CRA........i found this dubious, did he misunderstand?
> 
> i would assume the extra return was because she only works part time, and i think she reduced her work even more as they were expecting a baby, and because it was his first time filing jointly, there was a spousal tax credit given her low income, which reduced his taxes payable, and after other credits/deductions, ended up giving him a bigger tax return....this makes more sense to me than a "thank you" gift from CRA for filing jointly...ya?


Either your coworker is stringing you along or he just doesn't know what he is talking about. There is no such thing as a "Joint Return" in Canada, unlike the US. So CRA doesn't give out money to encourage couples to file jointly. But spouses have to report each other's income, as it may affect some credits and benefits. 

I believe some income tax software lets you enter information for both parties, which may give the impression it is a joint return, but it is just facilitating preparing 2 individual returns for couples. (As an aside, the use of tax software creates ignorance such as your coworker's, because the program is just a "black box" to them, and they have no real understanding of how such things as marital status affect their taxes.) 

Your second assumption is probably correct. Your coworker was nominally entitled to a spousal credit of about $10K, less his spouses' net income. So if her income was low enough he would benefit from it. Or maybe she was the one getting the tax refund, because her tax deducted at source was too much for the reduced hours she worked that year.


----------



## joncnca (Jul 12, 2009)

thanks for all the replies =)

my wife is now working half of a 40-hour full time schedule, but it will be too much to allow me to claim any unused portion of her basic personal amount.

so i have my own rrsp account, my wife has her own rrsp account. if i contribute to a spousal rrsp (using my contribution room), does that mean i need to open another rrsp account under her name, to which contributions to the spousal rrsp are made? i can claim the tax deduction, and as the account is in her name, she will withdraw when we retire, right?

i've prepared my taxes by hand for many years, and i find all the calculations fascinating. i find a lot of common questions are answered by simply doing taxes by hand following the CRA guide, it's fun, i make an afternoon out of it, lol. but 2011 will be the first time filing with a spouse!


----------



## kcowan (Jul 1, 2010)

joncnca said:


> but 2011 will be the first time filing with a spouse!


If you have any medical expenses, you can claim them against the lower income spouse (less the 3% deduction) and this can become quite sizable. A major benefit to joint filing.


----------



## OhGreatGuru (May 24, 2009)

joncnca said:


> ...
> 
> so i have my own rrsp account, my wife has her own rrsp account. if i contribute to a spousal rrsp (using my contribution room), does that mean i need to open another rrsp account under her name, to which contributions to the spousal rrsp are made? i can claim the tax deduction, and as the account is in her name, she will withdraw when we retire, right?
> ...


You open a Spousal RRSP for which you are the contributor, and she is designated as the annuitant. The income tax slips will be made out identifying you as the contributor. 

You should be aware that there is a 3-year attribution rule, to discourage using spousal RRSPs as a way of splitting current income. If a withdrawal is made from a spousal RRSP, and any contributions have been made within the past 3 years, part or all of the withdrawal may be attributed as income to you rather than your spouse. This should not be a concern to you unless you were planning on making early withdrawals. 

It is permissible to combine your wife's personal RRSP and a spousal RRSP for which she is the annuitant. (and some people want to do it because it creates a larger capital base in one account) But it creates an accounting nightmare for you to keep a proper paper trail (for CRA's satisfaction) of what was a your contribution and what was her personal contribution. This has been discussed on other threads. So for practical reasons it is generally recommended to keep them separate.


----------



## joncnca (Jul 12, 2009)

thanks for clearing that up for me, OhGreatGuru.

I guess i'd have to go to the bank to open up a spousal RRSP to make this happen. is this "spousal" RRSP a special kind of account, or is it just a regular RRSP with me as contributor and my wife as annuitant? 

by "regular" i mean, me as contributor, me as annuitant.


----------

