Financial planning considerations for gay, lesbian, bisexual and transgender couples
There are some legal and financial differences for married vs. common law couples.
I'm proud to be Canadian. While they battle over same sex marriage in the United States, Canadians have embraced the concept since 2005. The Civil Marriage Act represents a significant milestone in recognizing equal rights for same-sex couples. Today, gay, lesbian, bisexual, and transgender couples enjoy most of the same rights as opposite sex couples across the country. Some differences remain in a number of provinces, though.
A marriage is a major life event that should prompt you to review your financial situation. While a common law relationship can be just as loving and fulfilling as a marriage, there are legal and financial implications. Since it's Pride week in Toronto, I thought I would discuss financial planning for gay, lesbian, bisexual and transgender couples.
From a tax perspective, common-law couples are on equal footing with legally married couples. This means that partners — married or common-law, same-sex or opposite-sex — receive the same tax benefits and are subject to the same obligations. Be sure to inform the Canada Revenue Agency (CRA) if your marital status has changed or if you've entered into a common-law relationship.
The tax advantages include the ability to:
- claim a tax credit for a financially dependent partner
- transfer credits and amounts (such as the age amount, disability amount and pension income amount) to a partner
- maximize tax returns by combining credits (such as medical expenses or charitable donations)
On the other hand, you might lose or have certain credits reduced as a result of using the combined family net income to determine the income threshold. These include the GST credit and the Canada Child Tax Benefit.
Partners can also take advantage of several income splitting strategies. In a spousal RSP for example, contributions to the plan can be deducted from the contributor's income. Subject to the spousal RSP attribution rules, once the money is withdrawn it will be taxable in the hands of the partner.
Partners may also share their Canada Pension Plan (CPP) payments. Provided both partners are over 60 and receive CPP payments, they may share a portion of the pension benefit earned during their time together.
We've also been allowed to split pension income since 2007. If you receive income which qualifies for the pension income credit, you can allocate up to half of that income to your partner. If you're over 65, income from an annuity or registered retirement income fund are also eligible for splitting.
At death, RSP and RIF assets can roll over to the surviving partner on a tax-deferred basis. Also, the assets held in a Tax-Free Savings Account can be transferred to the surviving partner on a tax- free basis.
There is at least one less favourable tax implication of being in a spousal relationship: Often two people entering into a relationship own their own homes. Many decide to live in one and sell the other. If this happens after your wedding day, one home becomes your principal residence and the other home is considered the secondary residence. When you sell it, you may become subject to a capital gain.
Because common-law couples aren't treated differently from those that are legally married for tax purposes, people often believe that both groups enjoy the same rights across the board. In reality, this isn't always the case when it comes to family and estate law. Rules can vary dramatically from one province to the next. Even the definition of "common-law" varies across the country.
Generally speaking, the provinces view marriage as an economic partnership. When that partnership ends (as a result of separation, divorce and or death) each spouse is usually entitled to an equal share of assets accumulated during the marriage. However, in some provinces, the definition of spouse does not include a common-law partner for the purposes of property division. As well, although married couples may have equal right to the matrimonial home, it's not the case for common-law couples in certain provinces.
Under provincial legislation, the surviving spouse is entitled to an automatic share of the estate of the spouse who dies intestate. Some provinces provide common-law partners the same rights as those who are married. But some do not. It's a good idea to make sure you and your partner have a valid, up-to-date will if you want to ensure he or she inherits your property.
Marriage can be wonderful, whether you are gay or straight. Just ensure you have a good understanding of tax, family and estate law implications of a marriage or common-law relationship. It'll go a long way to creating a sound financial plan and hopefully, a long and happy relationship.
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The one luxury that I would pay extra for when looking for a home:
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- An indoor swimming pool or hot tub
- Heated bathroom floors (no more cold feet!)
- A heated driveway … No more shovelling!
- A home cinema room