In a recent article titled “One Little-Known CRA Rule All Married Canadians Should Know,” I explored the Spousal Registered Retirement Savings Plan (RRSP) Contribution Rule and how it can save married couples money. The gist of the article was that, in a married couple, the higher-earning spouse can contribute to the other spouse’s RRSP and have the deduction come off their own tax bill. That results in higher tax savings for the couple (high earners pay higher taxes and thus gain more from deductions) and potentially a higher RRSP balance for the lower-earning spouse. Talk about a win-win!
But the tax savings for married couples do not end there! Although much ado was made about the clawback on income splitting in 2019, the truth is that there are still many ways for married couples to save money, where their unmarried peers cannot. In this article, I will explore three of them.
Spouse and common-law partner amount
The spouse and common-law partner amount is a sum you can claim (it was $14,398 in 2022) if you supported a dependent spouse at any point during the year. “Dependent” in this context means not earning a living income. What is not a living income? It’s the same as the maximum amount that can be claimed, so $14,398 in 2022. It appears that the 2023 amount hasn’t been published yet, but it will be slightly more than the 2022 amount. This tax break is a credit, so you get 15% of the amount claimed taken off your tax bill.
Now, you might be wondering, “How’s this a benefit when a single person wouldn’t have support expenses in the first place?” While it’s true that this tax break is only a partial recovery of expenses, remember that people in casual or early-stage relationships can’t claim it. So, it is a benefit that the married and common law enjoy that those in casual relationships do not.
Pension income splitting
Another big money saver that married couples can take advantage of is pension income splitting. This is where you split pension income (including RRSP income) with your spouse, thus lowering the taxes payable on it.
As for getting RRSP income to “split” in the first place, that comes from investing. Just holding cash won’t do much for you. By investing in stocks, bonds and funds, you can grow your RRSP so that you end up with a lot of income to split.
Consider Canadian National Railway (TSX:CNR) stock, for example. It’s a stable, dependable company that forms the cornerstone of many wealthy investors’ portfolios. The company has only one competitor in Canada and a small handful of them in the United States, giving it significant pricing power. It has high profit margins brought on by said pricing power. It’s a pillar of the North American transportation industry, shipping $250 billion worth of goods per year. Finally, it pays a dividend, so it generates recurring income that minimizes the need to time your stock sales. All in all, it’s a worthy stock to consider holding in your RRSP portfolio.
Pooled medical expenses
Finally, we have the pooled medical expenses tax credit. You can claim up to $2,635 worth of your spouse’s medical expenses as a tax credit. As with other credits, you actually get 15% of the amount claimed, so up to $395. This credit on its own isn’t that generous, but when you add the pooled medical expenses tax credit to other credits, deductions and “income splits” that married people can do/get, the value adds up.
