When you and your partner are thinking about moving in together, you may have questions about the tax implications of being in a common-law relationship. Claiming your partner on your tax return can be confusing in this situation, and you may have questions about whether you’ve lived together long enough to qualify as common-law or if you’re even required to state your marital status. Fortunately, the CRA has very clear guidelines for this situation, so make sure you pay attention to the regulations when tax time rolls around.
Definition of “Common Law” in Ontario
Understanding the definition of “common law” is very important. You need to know exactly what your legal rights and privileges are in this situation, and that means knowing exactly what constitutes a common-law partnership in Ontario.
- You must be living at the same residence in a conjugal relationship
- You must have lived together for at least twelve months OR have a child together
- You must not have lived apart for more than 90 days
The government of Canada considers seven characteristics of a common-law partnership for the purposes of determining the status of your relationship:
- Shelter (shared residence)
- Sexual and personal behaviour
- Services toward one another
- Social activities
- Societal response to your relationship
- Financial support of one another
- Your attitudes towards having children together, or whether you have a child already
Know the Facts About Common Law and Filing Taxes
Filing your tax return when you’re in a common-law relationship can be a little tricky if you don’t know all the regulations. Many people believe that spouses file a single tax return between them. This is untrue, regardless of whether you are married or common-law. Although the two of you will still be filing separately, you will need to indicate your marital status and include your partner’s income and social insurance number.
Filing as common-law versus as a single person can affect your tax return. Your relationship status may seem irrelevant to how much tax you pay, but the CRA sees it differently. They determine government credits and benefits based on your household income, which is why you’ll need to include your partner’s SIN and income in your own tax return (and vice-versa). If you are in a common-law relationship and do not indicate this on your tax return, you may be found guilty of tax fraud, with possible consequences including being reassessed for unpaid taxes (including interest and penalties) or being denied CPP benefits or other pension or survivor benefits in the future.
Tax Benefits to Filing as Common Law
There are more implications to filing your taxes as common law besides the amount of tax you pay. In fact, it often ends up being to your benefit!
- Medical expenses: The two of you can combine your receipts for medical expenses, potentially increasing the tax write-off.
- Charitable donations: You’ll be able to combine your charitable donations and claim them on whichever return offers the greater tax benefit.
- Family Tax Cut: This is available to you if you have a child under 18 years old.
- RRSP contributions: Even if you aren’t legally married, you’ll be able to contribute to your partner’s RRSP if you wish.
- Tax credits for dependents: If one of you is not working, the other spouse can gain tax credits by claiming the non-working spouse as a dependent.
- Home Buyer’s Tax Credit: This is available to you if you and/or your spouse have purchased your first home this tax year.
Additionally, you may transfer any tax credits you do not use to your spouse, including the Disability Tax Credit, any pension income payment amounts, age credit for those over 65, and post-secondary education credits.
Disadvantages to Filing Taxes as Common Law
On the other hand, there are also some disadvantages to filing your taxes as a common-law partnership, just as there are for married couples:
- You may no longer be eligible for certain tax credits, including the GST/HST credit, Canada Child Benefit, Guaranteed Income Supplement, and Working Income Tax Benefit.
- You will only be able to claim one exemption from capital gains on your primary residence.
- Provincial tax credits may also be affected by your marital status.
Taxes After Separation
If you should happen to break up, there are tax implications to that as well. In order for the CRA to consider you officially separated, you will have to have been apart for at least 90 days. Also, when filing your tax return for the year in which you separated, you will still need to account for your ex’s income up to the date of separation.
Call Galbraith Family Law for Assistance
Understanding all the legal ins and outs of your relationship status can be difficult. Fortunately, the lawyers at Galbraith Family Law have extensive experience in this area and are happy to answer any questions you may have about common-law partnerships. For a consultation, call (289) 802-2433 in the Newmarket area or (705) 302-1102 in Barrie. You can also send a message through our website.