It’s wedding season; and if you are tying the knot this summer take some time to review your financial household, you may find some unexpected benefits.
Employee Health Plan – If only one of you has an employee benefit plan you can add your significant other to the plan at a fraction of the cost of them paying for a plan on their own. If you both have plans, review them carefully; one of you may have to pay into the plan while the other’s is free; you can opt out of the one and move both of you under the free plan. If neither of you have to pay for coverage it may make sense to keep both, many plans only pay up to 80% for prescription and dental expenses; so remit under your own plan first, then remit the remaining 20% under you new spouse’s plan.
Spousal Tax Credit – If one spouse is not employed or is earning below the basic personal amount (currently $12,069), then the other spouse can claim up to that amount as a spousal credit, lowering both federal and provincial income tax.
Spousal Investment Loans – The spouse in the higher tax bracket can loan their partner money to invest; he/she must charge them a minimum of 1% interest on the loan. Any money made on the investment will then be taxed in the lower income earner’s hands.
Income Splitting through Spousal RRSPs – Spouses can split income in retirement by using Spousal RRSPs. A Spousal RRSP allows one spouse (usually higher income earner) to invest in an RRSP in the lower income earner’s name. This will provide tax relief for the higher income earner during the working years; and allow the cash to be taxed in the lower income earner’s tax bracket during retirement. This strategy works great when one spouse stays home and raises the children and the working partner has a pension plan through their employer.
Pension Splitting – Upon retirement spouses are allowed to share eligible pension, life annuity and RIFF income for tax purposes. Canada Pension Plan (CPP) and Old Age Security (OAS) do not qualify, however spouses over age 60 can elect to split CPP payments on the portion of the CPP earned while they were together.
Additional Tax Benefits – Spouses can combine qualifying medical expenses and charitable donations (above $200) and claim them on the lower income earner’s tax return. In addition, if one spouse is studying at a qualified educational institution they can claim deductions for tuition, textbook and other education expenses; any unused portions can be transferred to their partner, to a maximum of $5000.
Update your Beneficiary Designations – It is common for single people to name their parents or siblings as beneficiaries for their RRSPs, Life Insurance and TFSAs. Marriage doesn’t automatically change your beneficiary to your spouse; to avoid problems down the road contact your financial institutions and update your plans. It is also a good time to review and update your Will and Powers of Attorneys.
To ensure you receive all of the tax benefits you are entitled to; it would be a good idea to use the same accountant to prepare your tax returns going forward. You are not required to file joint returns but you will be required to disclose your marital status.
Have a great weekend,
Tracey
Source: original article posted on Advisor.ca 02-23-16 by Susan Goldberg, MT 05-24-18
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