Mixed family and family allowances

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LE COURRIER DE SÉRAFIN is a section that presents twice a week a user’s personal finance question, followed by an answer from Sérafin, an AI specializing in personal finance in Quebec. Everything is accompanied by a verification comment or addition from a financial professional.

“I am a single parent with full-time care for my two children and a salary of $70,000 a year. This year I am considering moving in with my new partner who is childless and makes $130,000 a year. I wondered if I would lose tax credits or state aid.

Serafin’s answers

Your change in family situation, characterized by a significant increase in family income as a result of your moving in with your new spouse, will have an impact on the allowances and tax credits you received as a single parent once you are recognized as a common-law partner.

Here is a global and detailed assessment of your situation regarding tax credits and government assistance, focusing on the federal and Quebec context, taking into account your change in family situation:

Tax credits and government support allocated

Canada Child Benefit (CCB) and Quebec Family Allowance: These benefits depend on the family’s net income. Once the joint tax return starts, an increase in family income could lead to a reduction in the amounts received, as these benefits are aimed at low- and middle-income families.

GST/QST tax credit and Solidarity tax credit in Quebec:

These credits are adjusted according to family income. They are designed to help low- and moderate-income households, so an increase in income could reduce or eliminate eligibility for these loans.

Effect of other tax credits and considerations

Other provincial and federal tax credits may also be affected by your change in marital status and increase in combined income. The eligibility and amount of these tax credits and deductions could be reduced accordingly.

Estimated financial impact

The exact financial impact will depend on a variety of factors, such as total family income, the number of children in your care, and your eligibility for additional credits or deductions. A multi-step approach is recommended:

– Calculation of allowances and credits according to new family income to estimate changes in family allowances and eligible tax credits.

– Comparison of scenarios before and after the change of situation in order to assess the overall financial impact.

– Exploring tax planning strategies such as contributions to an RRSP or TFSA that may provide additional tax benefits.

Consult a financial planner or CPA. This is necessary to obtain an accurate assessment and advice on how to navigate the new tax and financial situation. A professional will be able to provide you with a detailed analysis of the impact on your finances and allocations, while identifying the optimal strategies for your situation.

Answer from Isabelle Bérard, MBA, Pl. Financial Planner Assante Financial Management Ltd – Private Management Major

When you’re a single parent, it can sometimes be hard to make ends meet. By moving in with your new flame, you’re telling yourself that not only will you have the chance to wake up next to them every day, but you’ll also be able to share some expenses and improve your financial situation. You can have very unpleasant surprises! Getting back into a relationship when you already have kids can be expensive!

After one year of cohabitation, the Canada Revenue Agency and Revenu Québec consider spouses to be common law partners. There will therefore be an adjustment to the calculation of the family’s income, which may result in the loss of certain tax credits for both.

A change in family income will also have a direct impact on the amount of provincial and federal family benefits, and this reduction can have serious consequences. The income of the new spouse will also be included in the calculation of family income, and family allowances will probably be reduced. Even if the new husband is not the parent of the children and does not pay for them.

For example, a single-parent family with two children, ages 5 and 7, whose head of household earns $70,000 would receive $13,505 a year from Canada and $5,005 from Quebec, for a total of $18,510. The arrival of a husband whose salary is $130,000 makes a big difference! Family allowances would drop to $8,083 a year, a difference of more than $10,000.

As a single parent, you may be eligible for a child support loan. This is a nonrefundable federal credit designed to assist taxpayers who must provide sole support for a child, parent, or loved one. In certain cases, only heads of single-parent families and separated parents (i.e. no longer living with the other parent) who are not supporting their children can apply for this credit. FYI, this credit had a maximum value of $1,879 in 2023.

In short, the arrival of a husband whose salary would be $130,000 changes the situation considerably! Few couples consider this situation when they decide to start a family again.

Consider negotiating with the new spouse ways to compensate for the financial losses incurred by the transition from a single-parent family to a blended family. If you are considering living together with a new partner, it is in your best interest to inform yourself about the financial implications.

– There are also many other things you should think about when you want to live together:

– Have the financial problems from the previous union been resolved?

– Can we agree on how to manage the spouses’ finances?

– How will we separate household expenses?

– What about expenses related to the child?

Living as a couple also has advantages from a financial and tax point of view. Getting advice from a professional will let you know where you are headed and prepare you to properly plan this new phase of your life.

*The views expressed in this article are those of the author and not necessarily those of Assante Financial Management Ltd.

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