Here comes the bride! And a personal finance checklist…
Spring is here and so is the traditional wedding season. In addition to the emotional benefits, marriage can also bring certain financial perks. Getting married, or know someone who is? Here are some areas to explore:
A spousal Registered Retirement Savings Plan (RRSP) is one of the most effective long-term income-splitting strategies in existence. Essentially, Spouse A contributes to an RRSP (up to his or her limit) that belongs to Spouse B. Spouse A gets the current-year tax benefit. When funds are withdrawn from the RRSP after retirement, they enter into Spouse B’s taxable income.
The higher-income spouse should consider paying the household expenses. The other spouse can then invest his or her earnings and have the returns taxed at his or her lower rate.
Medical expense tax credit
Both spouses should combine their medical expenses and have the spouse with the lower income claim them. That’s because the federal medical tax credit applies only to expenses that exceed $2,268 (for 2018) or 3% of taxable income, whichever is less.
Donations to charity
Combining the donations of both spouses and claiming them on one return maximizes the donation value above the $200 threshold, where the top federal tax credit applies.
Perhaps your spouse is a student or full-time homemaker, or pursues some other activity that doesn’t pay much. You might be able to claim a spousal tax credit. If the low-income spouse receives stock dividends that qualify for the dividend tax credit, you can include them in your income so they don’t reduce the spousal credit.
Up to $5,000 in tuition tax credits can be transferred to a supporting spouse, parent, or grandparent if the student doesn’t need them to reduce his or her tax bill to zero. Other amounts including the disability tax credit are also transferable.
Just in case…Unfortunately, the statistics tell us that there is a risk of divorce or separation sometime down the road.
Just before the wedding each spouse should document his or her financial holdings and valuable personal property. If there is a break-up later, provincial asset-splitting rules grant each spouse credit for what he or she brought into the marriage — but only if there is documentation. If there’s a significant disparity in what you and your spouse are bringing to the marriage, you might want to consider a prenuptial agreement.
To take advantage of the planning opportunities that come with marriage, professional advice can be invaluable.