Married Canadians have a lot of tax breaks that other Canadians — sometimes even common-law Canadians — don’t have access to. There’s income splitting, spousal Registered Retirement Savings Plan (RRSP) contributions, and capital gains splitting. These and other tax-saving benefits are available exclusively to the legally wed. If you’ve been married for a while and are aware of financial matters, you probably know of these benefits. There are other benefits you may not be aware of.
In this article, I will explore one such tax credit that is relatively obscure, despite offering up to $2,250 in tax savings.
The spousal tax credit
The spousal tax credit is one of the most valuable tax breaks available to married Canadians. Technically, this credit is meant for “primary breadwinners” who support their spouses, but the way it’s determined does not actually require that your spouse be dependent on you (or you on your spouse).
It’s a simple matter of the lower-earning spouse’s income. If the lower-earning spouse earns less than the basic personal amount ($15,000), then you subtract their income from that amount, claim the difference, and collect 15% as tax savings. If your spouse has a parent paying all of their expenses, it doesn’t matter, because the income difference between the two spouses is considered adequate proof that one is supporting the other.
How much you could save
Like most tax credits, the spousal tax credit is 15% of the amount claimed. So, if your spouse earns $12,000 per year, you can claim $3,000 and save $450. The maximum tax savings you can get from the spousal amount is $2,250, which is triggered when the lower-earning spouse has no income at all.
What to do with your refund
If you save money by using the spousal amount, you might wonder what to do with the savings. The maximum amount — $2,250 — is not an insignificant amount of money. It might go far if you use it right.
You could consider investing in dividend stocks like Fortis (TSX:FTS) with your tax savings. Such stocks offer stable, dependent dividend income and often deliver capital gains as well.
Many Canadian dividend stocks have high yields, but not all of them have the best long-term track records. Fortis is one of the exceptions. With 50 consecutive years of dividend increases under its belt, it has stood the test of time.
How has Fortis managed to achieve this stellar dividend track record?
For one thing, it’s a regulated utility, meaning that it enjoys protection from competition and has a highly stable revenue stream.
For another thing, it has invested in growth over the decades, resulting in it accumulating a large utility portfolio spanning Canada, the U.S., and the Caribbean.
Finally, though it has a lot of debt, it manages its liabilities well, maintaining a high credit score that lets it borrow more cheaply than less creditworthy competitors. It all adds up to a very compelling dividend stock with a 4.36% yield. It would make an excellent addition to a diversified RRSP or Tax-Free Savings Account portfolio.
