Main Topics

Taxing Canadian Twosomes



Couples for tax purposes

Spouses and common-law partners are treated the same way for Canadian income tax purposes.

Spouses are individuals who are legally married. A common-law partnership exists when two individuals have been living together in a conjugal relationship for at least 12 months. Parents of the same child are considered to be common-law partners if they have been living together in a conjugal relationship for any period of time. Common-law partners may be of the same or opposite sex.

How is income split?

It's important to know the rules on taxing couples.

The child tax benefit and the GST/HST credit are calculated based on family income, while federal and provincial taxes are calculated on an individual basis. Therefore, two couples with the same total family income will get identical child tax benefits and GST/HST credits, but may have to pay different amounts of income tax.

There can be a significant difference in the total tax burden depending on the distribution of that income between the individuals.

An example

Let's take the case of Amal and Neema, who live in Ontario. Amal has a taxable income of $20,000 and Neema has a taxable income of $45,000 in 2003. Their neighbours, Charisse and Mary, have taxable incomes of $32,500 each. Both households have a total taxable income of $65,000.

Amal and Neema pay $12,063 total in income taxes compared to $10,946 for Charisse and Mary. This difference of 10 per cent is caused solely by the uneven distribution of income between Amal and Neema, which pushes part of Neema's income into a higher tax bracket. If one spouse earned all of the $65,000 family income, as in Joe and Elaine's family, the difference would be $3,286 or 30 per cent (including the married tax credit).

Three Ontario couples

Joe and Elaine

Amal and Neema

Charisse and Mary

First income

$65,000

$45,000

$32,500

Partner's income

0

$20,000

$32,500

Total income

$65,000

$65,000

$65,000

Income tax paid

$14,232

$12,063

$10,946

Difference

+$3,286

+$1,117


Get tax advice

Surely, this is inappropriate for a system that is supposed to levy tax based on the ability to pay.

Taxing common-law and married couples in the same way was introduced in 1993. Treating same-sex couples on the same footing as heterosexual couples began in 2001. Both are important steps toward improving tax fairness, but took many years to develop. Let's hope the next step, the removal of inconsistencies in the taxation of couples, will be addressed soon.


A member of Advocis can help you develop a financial plan to deal effectively with the tax rules for couples.