Anaya Nolan
In Canada, common-law relationships are on the rise, with nearly one-quarter of couples now choosing this arrangement. While common-law partners must file individual tax returns, they are considered married for tax purposes and must disclose their relationship status and partner information when filing. This can have both advantages and disadvantages, impacting tax credits, benefits, and overall tax liability. So, while there is no common tax return, filing as common law can indeed affect taxes in Canada.
| Characteristics | Values |
|---|---|
| Definition of common-law partnership | The Government of Canada considers seven characteristics of a common-law partnership. To fall under the common-law category, partners must have lived together for a minimum of 12 consecutive months. Other situations that classify as a common-law arrangement include living with a person with whom you share a child, either as a birth parent or under a custodial agreement. |
| Filing process | In Canada, each person files their own tax return and indicates their marital status and who they are married to/living with on the return. |
| Partner information | While filing the tax return, include your partner's details, such as their full name, social insurance number, and net income (even if it's zero). |
| Benefits | Filing as married or common law allows for more strategic tax planning, often resulting in lower overall taxes and increased benefits. These advantages can include income splitting, combined deductions and credits, and Canada Child Benefit (CCB). |
| Disadvantages | 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. |
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What You'll Learn
Common-law relationship definition
In Canada, common-law relationships are recognised for certain purposes, but common-law marriage is not a legal concept. The recognition of common-law relationships varies across the provinces, with most recognising cohabiting couples as common-law after 1-3 years of living together or if the couple has a child together. In Quebec, a couple is considered common-law after two years of cohabitation. In Ontario, the requirement is three years of cohabitation. In Alberta, adult interdependent relationships are recognised as common-law, and these do not have to be romantic or sexual.
The Canada Revenue Agency (CRA) defines common-law partners as those who have lived together in a conjugal relationship for at least 12 months, or immediately if they have a child together. This definition is used for tax purposes, and common-law couples are treated the same as married couples in this context. When filing taxes, each partner must file their own return, but they should be prepared together. Common-law partners can benefit from income splitting, combined deductions and credits, and increased benefits for children.
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Individual tax returns
In Canada, individual tax returns are filed separately, even if you are married or in a common-law relationship. Each person must file their own tax return, indicating their marital status and the name of their spouse or common-law partner. This is the case even if you are considered common-law by the Canada Revenue Agency (CRA) and not legally married.
If you are in a common-law relationship, you must disclose this on your tax return. The CRA defines a common-law relationship as when two people live together in a conjugal relationship for 12 months or immediately if they have a child together. If you have been separated for less than 90 days within a 12-month period, you are still considered common-law for tax purposes.
There are advantages and disadvantages to filing as a common-law couple compared to filing as a single person. One advantage is that you can combine deductions and credits, such as spousal amount, medical expenses, and charitable donations. You may also be eligible for benefits such as the Canada Child Benefit (CCB) and the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit. However, you may no longer be eligible for certain tax credits, such as the GST/HST credit, and your combined income may disqualify you from some benefits programs.
It is important to note that the definition of a common-law relationship may vary from province to province, so it is recommended to consult a qualified tax professional to ensure you are filing your taxes accurately and taking advantage of all the benefits and credits available to you.
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Tax credits and benefits
In Canada, every individual files their own tax returns, regardless of their marital status. However, when filing as common law, you must include your partner's income and social insurance number. This can affect your tax credits and benefits.
The CRA determines government credits and benefits based on your household income. So, while there are no specific deductions or tax credits for being single, your combined income as a couple may disqualify you from some benefits programs you were previously eligible for as a single person. For example, your eligibility for the GST/HST credit, CCB, and CWB is based on family income.
There are, however, some tax credits and benefits that you can take advantage of when filing as common law. These include:
- The ability to transfer some tax credits from your spouse's return to yours, such as the tuition amount, age amount, disability amount, and pension income amount.
- Combining credits and expenses, such as charitable donation credits and medical expenses.
- Claiming tax credits for dependents if one spouse is not working.
- The Home Buyer's Tax Credit, if you and/or your spouse have purchased your first home.
- The Family Tax Cut, if you have a child under 18 years old.
- Spousal RRSP contributions, which can enhance your combined retirement savings strategy.
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Relationship status changes
In Canada, relationship status changes can impact your taxes. Whether married, in a common-law partnership, or separated, the filing process in Canada is the same: each person files an individual tax return. However, you must indicate your marital status and the name of your spouse or common-law partner on the return.
If you are in a common-law relationship, you must file as such. In Canada, a common-law relationship is generally defined as when two people live together in a conjugal relationship for 12 months or more, or immediately if they have a child together. If you have been separated for less than 90 days within a 12-month period, you are still considered common-law for tax purposes.
There are advantages and disadvantages to filing as a common-law partner compared to filing as a single person. One advantage is that you can combine deductions and credits, such as spousal amount, medical expenses, and charitable donations. You may also be eligible for benefits such as the Canada Child Benefit (CCB) and the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit. However, you may no longer be eligible for certain tax credits, such as the GST/HST credit, Canada Child Benefit, Guaranteed Income Supplement, and Working Income Tax Benefit.
If your relationship status changes, you must update your records by the end of the month following your marriage. You can do this by using the "Change my marital status" service in My Account, selecting "Marital status" in the MyBenefits CRA or MyCRA mobile apps, calling the CRA, or sending a completed Form RC65, Marital Status Change.
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Tax implications
In Canada, each individual files their own tax return, regardless of their marital status. However, those in common-law relationships must indicate their status and include their partner's details, such as their full name, social insurance number, and net income.
There are several advantages to filing as common law. For instance, you can combine your charitable donations and claim them on whichever return offers the greatest tax benefit. You can also combine your receipts for medical expenses, potentially increasing the tax write-off. If one of you is not working, the other spouse can gain tax credits by claiming the non-working spouse as a dependent.
There are also some disadvantages to filing as common law. 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.
It is important to note that what constitutes a common-law relationship varies from province to province. However, generally, a couple is considered common law when they have lived together in a conjugal relationship for at least 12 consecutive months or immediately if they have a child together.
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Frequently asked questions
A common-law relationship in Canada is when two people live together in a conjugal relationship for 12 months or more, or immediately if they have a child together.
In Canada, each person must file their own tax return and indicate their marital status and their spouse's information, including their name, social insurance number, net income, and employment status.
Filing as common-law allows for more strategic tax planning, often resulting in lower overall taxes and increased benefits. Advantages include income splitting, combined deductions and credits, and increased benefits for children.
You may no longer be eligible for certain tax credits, such as the GST/HST credit, Canada Child Benefit, and provincial tax credits. Additionally, you will only be able to claim one exemption from capital gains on your primary residence.
