Is it time single people got more tax breaks?

May we interrupt your Valentine’s Day preparations to discuss the tax code? It’s not as romantic as a glass of wine with your significant other or BFFs, but we thought this was a great time to discuss some important things over dinner and drinks.  

Like tax breaks for singles. There are so many things that remind people that they’re single: Valentine’s Day, birthdays, society, taxes, that gaping hole in their… no, single people are completely fine, thank you very much. Except when tax season is upon us. Articles appear on the horizon about all the deductions couples can leverage. But for single people? It’s pretty much nothing unless you have kids or you move. With more Canadians living in a one-person household, the question becomes, is it time for more tax breaks for those who are single to match those given to couples?

When you ask single people, the response is a resounding yes and this is backed up when you look at the tax code. “The Canadian tax code does not presently provide many, if any specific tax credits or deductions for single taxpayers,” says Warren Orlans, blog editor for TurboTax and a tax expert who spent seven years working for the Canada Revenue Agency.

A brief history of Canadian taxes  

It didn’t used to be this way. Income tax didn’t exist federally until 1917 when it was introduced to help finance the First World War. Even then, income tax "gave special treatment to married individuals despite using the individual as the basic tax unit," according to a paper by Lisa Phillips.

Phillips found that the federal government proposed a basic personal exemption with no dependency exemptions for spouses, children, or anyone else because they understood that not everyone had a spouse but had other relationships including living with siblings or looking after elderly parents. The opposition thought it was unfair for married men (the majority of whom were going to pay under the new income tax), to not have more exemptions than single people. They even said that it might discourage men from getting married. As a result, the basic personal exemption was cut in half for unmarried people.

How much of a disadvantage do single people have? 

The news that there aren’t that many tax breaks for single people won’t be a surprise to those who have filed taxes, but Alexandra McQueen, a certified financial planner, points out that most married couples don’t benefit that much from the tax code either. “So the first thing is there's not that many advantages when you're still working from a tax point of view for married couples or common law,” she says. “So what you can do is you can combine medical expenses, you can do interspousal loans, you can do a spousal RRSP and you can combine charitable credits, but all of those things together are fairly minimal.”

However, where couples really benefit and singles really don’t, says McQueen, is in retirement. “Where you really see a difference for two reasons. The first is pension income splitting, which is an unbelievable tax advantage for married people who have eligible pension income.” She says there are two forms of discrimination there. The first is that not many Canadians have a pension to look forward to in retirement and the second is if you do, and you’re single, you can’t split it with anyone. Another advantage spouses or partners have is CPP, specifically survivor benefits.

The opposition thought it was unfair for married men (the majority of whom were going to pay under the new income tax), to not have more exemptions than single people

“If I'm single and I die, there's nothing, there's nothing left but if I'm married, I have a survivor pension that goes to the person who outlives me,” explains McQueen. “But why couldn’t someone designate it to a parent or a sibling?” She references a case in 2016 in Nova Scotia where two sisters, Betty Wilsack and Margaret Renouf, live together. They aren’t entitled to each other’s survivor's pension from CPP, OAS or their employer pensions if one of them dies. They’ve written to their provincial and federal politicians to ask why they don’t have the same benefits that married and common-law partners do.

Yen Mac, a Toronto-based working parent in a dual-income household, says that having better funding for important programs would be more beneficial than increasing tax deductions.

“I feel like a lot of people misunderstand tax deductibles to begin with – they view that as getting a handout but really, most deductibles require an amount paid upfront and the amount of deductions is very limited. Realistically I would rather have better funded programs that requires us to pay less upfront than to go deal with tax deductions. They basically just sound good but really you don’t get much back.”

Orlans of TurboTax says there are some benefits to filing as single versus being married. You won’t have to wait for your spouse to file if you’re entitled to a GST or HST credit. “When applying for tax credits, such as the GST or HST credit, you don’t have to worry that your spouse’s income will reduce the amount that you receive,” he says. “That’s because the credit is based on net household income, so if your spouse makes more than you, you would no longer be eligible.”

Redefining the household economic unit

So, is there an option that would be more equal to single-led households without removing options from couple-led households? McQueen suggests it might be time to change the definition of what or who makes up a household or economic unit and offer the same tax breaks that couples currently have. The tax code currently allows spouses and partners to move credits around in the household because they have committed to each other and are an economic unit. “So if a single person who was not married wanted to have another person with whom they could share benefits, deductions, etc., presumably it would be a person with whom they had some kind of long-standing economic relationship,” she says. When it comes to estimating how many people would actually use that break if it was offered, she thinks it would be a relatively small number.

It’s not the first time the definition of a household unit has changed, says McQueen. The tax code changed to include same sex spouses and partners. She believes that the tax code isn’t being deliberately exclusionary. “I think it's not that by design we're including or excluding single people. It's that how we think — what is an economic unit? — is changing.”

That would be great for me and my best friends. We’re planning a Golden Girls-style retirement in a few decades, just with added snow and minus the lanai. A household tax break would be a bonus to go with the hot tub.