Are you considered Common-law for Tax Purposes?

By Randall Orser | Personal Income Tax

You and a significant other have decided to take a leap and moved into together; however, you didn’t get married. You may be considered common-law for tax purposes after living together for a certain length of time, whether, you believe so or not. And, you’d better not lie about living together, as this could catch up to you and cost you $1000s in taxes, fines, etc.

What is a Common-law Partner?

This applies to a person who is not your spouse, with whom you are living in a conjugal relationship, and to whom at least one of the following situations applies. He or she:

  1. has been living with you in a conjugal relationship, and this current relationship has lasted at least 12 continuous months;
    1. In this definition, 12 continuous months includes any period you were separated for less than 90 days because of a breakdown in the relationship.
  2. is the parent of your child by birth or adoption; or
  3. has custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support.

If the 90-day period includes the end of the tax year (December 31st), you may want to wait until 90 days have elapsed before filing your return, to avoid confusion and possibly having to submit a request for a change to your return.

If you were separated because of an involuntary separation, you are still considered to have a spouse or common-law partner if you were separated involuntarily. An involuntary separation could happen when one spouse or common-law partner is away for work, school, health reasons, or incarcerated.

And, these rules apply for same-sex couples, too.

What do I do Now that I’m Considered Living Common-law?

The first thing you should do is inform Canada Revenue Agency (CRA) in one of these ways:

  • log in to MyBenefits CRA or MyCRA on CRA’s mobile apps page
    • select “Manage profile details” or "Personal information" then “Marital status”
  • log in to My Account
    • select “Personal information” then “Change my marital status”
  • call the CRA at 1-800-387-1193
  • fill out Form RC65, Marital Status Change, and send it to the CRA

What Changes on My Taxes When I File Common-law?

The benefits you’ve been receiving, such as the GST/HST credit, or Canada Child Benefit (CCB), will be affected by being common-law. As a single person, you may have qualified for the GST/HST credit; however, as a common-law couple you may not. As a couple, CRA combines your income, so you need to have less than $45,000 combined family income to qualify.

The same for the Canada Child Benefit, as a couple the more your combined family income is the less benefit you get. The CCB decreases to zero around $150,000 in combined family income.

There is a plus side to being common-law. You can combine deductions for medical and donations under one spouse. If you don’t have enough medical to qualify individually, you may as a couple. For donations, you only get 15% on $200 in donations, however, you get 29% on the amount over $200. For example, you each have $175 in donations, individually you get 15% of that or $26.25; combined you’d have $350, you get $30 on the first $200 and $43.50 on the other $150 for a combined deduction of $73.50 (that’s almost 3 times as much).

Pension splitting is another area where you can save taxes when living common-law. If one person has a lower income (doesn’t have to be pension), and the other person has a higher income (must be pension based), then they can split the income to lower their tax bill.

There is also the spousal credit which is equivalent to the Basic Personal Exemption. If the spouse has no income then you get the full amount, otherwise, it decreases based on how much the other spouse makes.

If one spouse is going to school then the higher income spouse can claim a tuition/education transfer of up to $5000. And, the higher income spouse can claim the child care expenses if the spouse going to school has no income.

When you’re in a relationship, and you move in together, even without getting married, CRA will consider you common-law after 12 consecutive months. You need to inform CRA once you have lived together 12 consecutive months as any credits you are getting now will change once you are common-law. And, CRA will make you pay back any overpayments.

Follow

About the Author

Bookkeeper Extraordinaire Number Crunchers® Financial Services Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.