Cecily Zamora
How to File Common Law in Canada
In Canada, common-law partners must file individual tax returns and indicate their relationship status and their partner's information (name, social insurance number, net income, and employment status). The definition of a common-law relationship varies across provinces, but generally, it refers to couples who have lived together in a conjugal relationship for at least 12 months or have a child together. Common-law partners may benefit from certain tax credits and deductions, such as combining medical expenses and charitable donations, but they may also lose some tax benefits, such as the GST/HST credit and the Canada Child Benefit. It is important to understand the tax implications of filing as a common-law couple, as failing to disclose this information can result in penalties and interest.
| Characteristics | Values |
|---|---|
| Common-law definition | Living in a conjugal relationship with a person who is not your married spouse for 12 continuous months, or immediately if they have a child together |
| Common-law tax filing requirements | File individual tax returns, not a single return, and indicate common-law status and partner's information |
| Common-law tax benefits | Combining charitable donations and medical expenses, transferring unused tax credits, combining family income to calculate income-tested benefits |
| Common-law tax drawbacks | Loss of certain tax credits, including GST/HST credit, Canada Child Benefit, and Working Income Tax Benefit |
| Common-law separation | Must be separated for at least 90 days to be considered officially separated by the CRA |
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What You'll Learn
Common-law relationship definition
A common-law marriage is a legal marriage that does not involve a formal wedding ceremony, marriage license, or marriage certificate. It is a marriage based on the couple's agreement to consider themselves married and, in some cases, their cohabitation. Common-law marriages are recognised in some jurisdictions but not all. For example, common-law marriage is recognised in some states in the US, but not in Australia or Canada.
To be considered a common-law marriage, a couple must meet certain requirements. These include being of marriageable age, not already married or related by blood, and cohabiting for a \"significant\" period, although there is no specified time frame for this. The couple must also present themselves as married to their community and live together voluntarily.
If a couple is common-law married, they have the same rights and duties as any married couple who went through a formal marriage process. This includes inheritance rights, alimony, and child custody. To end a common-law marriage, the couple must file for divorce, and the court will treat the case as it would any other divorce, dividing property and debts acquired during the marriage.
If one partner in a common-law marriage dies, the surviving partner must provide evidence of the marriage to inherit property or receive benefits. This evidence can include how the couple referred to each other and presented themselves to the community. Ultimately, it is up to a court or agency to decide if a couple is common-law married, and this is usually done as part of a divorce or probate case.
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Tax filing process
In Canada, common-law couples are treated the same as married couples for tax purposes. Unlike in the US, Canadian tax rules do not allow spouses or common-law partners to file joint income tax returns. Each individual must file their own tax return and indicate their marital status, including the name, social insurance number (SIN), net income, and employment status of their spouse or common-law partner.
To be considered common-law, a couple must have lived together in a conjugal relationship for at least 12 continuous months, or immediately if they have a child together. If you meet this definition, you must indicate that you are living in a common-law relationship on your tax return. Failure to do so may result in consequences such as being found guilty of tax fraud, reassessment for unpaid taxes, and denial of certain benefits.
There are both advantages and disadvantages to filing taxes as a common-law couple. One advantage is the potential for income splitting, which can lead to a lower overall tax burden for the household. Common-law partners may also become eligible for various tax credits and benefits, such as medical benefits and charitable donations, which are often calculated based on the combined income of both partners. Additionally, common-law partners can transfer certain tax credits between each other to minimize their overall tax liability.
However, there may also be a loss of certain credits when filing as a couple. For example, single individuals may qualify for certain credits that are not applicable to those in a relationship, such as the GST/HST credit, Canada Child Benefit, Guaranteed Income Supplement, and Working Income Tax Benefit. Additionally, the tax filing process may become more complex if one partner has a complex financial situation with various deductions.
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Tax credits and benefits
In Canada, common-law couples are treated the same as married couples for income tax purposes. While tax rates remain the same, common-law partners can access certain tax credits and benefits that are unavailable to singles. However, they may also lose access to certain single-person benefits.
For instance, common-law partners can contribute to a spousal or common-law Registered Retirement Savings Plan (RRSP), allowing the higher earner to lower their tax liability while setting up a retirement plan for their partner. Additionally, they can claim the Family Tax Cut if they have a child under 18 and combine receipts for medical expenses and charitable donations to maximize their credits and pay less tax.
Common-law partners can also share some non-refundable tax credits to reduce their overall tax liability. They may be able to split pension income, allowing each partner to pay a lower tax rate by reducing individual incomes. Furthermore, they can deduct some of their spouse's unused deductions and tax credits from their potential tax liability.
However, common-law status may affect eligibility for certain credits and benefits based on income thresholds. For example, single filers earning $55,000 each may qualify for the GST/HST credit, but a couple with the same incomes may not. Similarly, common-law status may impact eligibility for the Canada Child Tax Benefit (CCTB) and Canada Workers Benefit (CWB) as these are based on adjusted family net income.
It is important to note that each partner must file their own tax return and disclose their relationship status, as it is illegal to lie about it. The Canada Revenue Agency (CRA) calculates government benefits based on household income, so both partners' incomes are considered when determining eligibility for tax credits and benefit amounts.
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Tax fraud
In Canada, common-law couples are not allowed to file joint returns. Instead, they must file individual returns and indicate that they are in a partnership. If you are in a common-law relationship, you must disclose your relationship status and provide information about your partner when filing your tax return. Failure to do so may result in penalties relating to benefits you received that you would not have qualified for if you had disclosed your common-law partnership.
One common form of tax fraud is pyramiding, where business owners withhold payroll taxes and keep the money instead of turning it over to the IRS. Another form of tax fraud is cashing out, where employers or employment agencies pay employees in cash, creating opportunities for tax evasion and Workers' Compensation law violations. Additionally, employers may underreport the number of employees or the amount of payroll taxes owed.
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$26.54
Relationship breakdown
A relationship breakdown in a common-law partnership can involve serious legal and financial matters that must be negotiated and finalised. Unlike married couples, common-law couples do not need a court decision to make their separation official. However, they must settle important issues, such as those involving their children, money, and property.
Both parents keep parental authority over their children even after separation. They must continue to discuss all important issues involving the children and make decisions in their best interest. Regarding property, each partner generally keeps their own property, even if it was purchased during the relationship or used by the family. There are, however, two important property rights that married spouses have upon separation that common-law spouses do not:
- Common-law spouses do not have an equal right to live in the family home, unless they are both owners.
- Common-law spouses do not have an automatic right to equalise their net family property acquired during the relationship.
To receive financial compensation from your former partner, specific requirements must be met. This can occur when one partner was placed at a financial disadvantage for the benefit of the other, or when the couple invested together in a business partnership. Consulting a lawyer or notary is advised to understand the specific rules for your situation.
Common-law couples can also enter into a formal Separation Agreement to outline how property will be divided, child custody and support arrangements, and spousal support payments. While it is possible to write your own agreement, consulting a lawyer can ensure that the agreement is clear, complete, and legally binding, protecting the rights of both parties. Mediation sessions, which may be available for free, can also help common-law couples reach an agreement.
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Frequently asked questions
The Government of Canada defines a common-law relationship as living in a conjugal relationship with a person who is not your married spouse. The couple must have lived together for at least 12 continuous months or have a child together.
Common-law couples in Canada must file their individual taxes as common-law. Each partner files a single return and marks that they are in a partnership. You must indicate your relationship status and include your partner's income and social insurance number.
Common-law partners can combine their charitable donations and medical expenses, potentially increasing the tax write-off. They may also transfer unused tax credits to their partner to reduce their household tax rate.
Filing as common-law may result in a loss of certain tax credits, such as the GST/HST credit, Canada Child Benefit, and Working Income Tax Benefit. Additionally, the CRA combines family income to determine eligibility for benefits, which may impact the amount received.
