We believe that families’ support is a key factor of success in each entrepreneurial journey and we want to make sure that their transition is as comfortable as possible.
First, we are going to talk about government support for spouses. Depending on your status (either common-law or married), you and your spouse might get access to different forms of support from the Canadian government.
SPOUSES
Common-Law: By definition, a common-law partner is a person with whom a taxpayer or resident lives in a conjugal relationship and at least one of the following conditions are met: either that the parties have cohabited with one another for the previous 2 years or the person is the parent of a taxpayer’s child. The length of the cohabitation period may vary by each province. If you meet one of the above criteria, you are considered a spouse under the Family Law Act. Married: The ordinary definition in which two people are legally united in marriage.
In Canada, common-law couples have many of the same rights as married couples. Everything listed below will be applicable to those living as common-law couples or if you are legally bonded by marriage. The main difference is when it comes down to the division of property in separation/divorce scenarios. If you wish to learn more about this key difference, please read the article here.
BENEFITS
Tax-free rollovers: If your spouse were to pass away, you’ll be given the right to sell everything virtually on your own which can give rise to taxes on capital gains. If you leave those assets to your spouse, then taxes will be deferred until your spouse passes or sells the assets Option to split pension income: If you receive eligible income, you can transfer up to one-half of the income to your spouse. You’ll both be able to claim the pension credit and tax savings which can be significant. Spousal Tax Credit: If your spouse has an income below $12,069 then you can claim the spousal credit. Ability to pool medical expenses: You will be able to claim medical expenses for your spouse or common-law partner when you file your tax return. You may also be entitled to a bigger tax credit if the partner with the lower income claims all medical expenses for the couple. Childcare Expenses: You may be able to deduct some of your childcare expenses when you file your tax return. Usually, the partner making less income must claim the child care expenses.
POTENTIAL CONS
Attribution Rules: Married/Common law couples generally cannot transfer investment income by transferring investment assets. Income and capital gains (or losses) on assets transferred attribute back to the spouse who transferred the asset. Potential Loss of Benefits: Eligibility for certain benefits such as the Guaranteed Income Supplement, Canada Child Tax Benefit, or GST Credit is determined by the family net income for a married couple. If either spouse qualified for these benefits before they were married, they may be reduced or lost based on the family’s net income. Loss of principal residence exemption: The capital gain on the sale of a principal residence is tax-exempt if the property is designated. If one spouse owned a home and the other owned a cottage, the capital gain on the sale of both properties could be exempt if they were not married. Once the couple is married, they will only be able to designate one home as their principal residence, and any capital gain on the sale of the other property is taxable. Some of the gains may still be exempt if they owned the property before they became married. Loss of eligible dependent credit: Single individuals may claim an eligible dependent credit for a minor child in their care. This credit is equivalent to the married credit but is not available to a person who is married throughout the year.
Suggested Prompts
How do the inheritance and transfer rules differ between common-law and married couples when it comes to property and investments?
What strategies can married or common-law entrepreneurs use to maximize their tax benefits while minimizing the risks associated with attribution rules?
In what ways might changes in family status, such as transitioning from common-law to married, impact eligibility for specific government benefits or tax credits?
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