Anaya Nolan
In Canada, common-law partners are defined as two individuals who have lived together in a conjugal relationship for at least 12 continuous months, including any period of separation of less than 90 days. For tax purposes, common-law partners must file their taxes separately, indicating their marital status and providing their partner's name, social insurance number, and net income. Common-law status may provide access to certain tax credits and benefits, such as the spousal tax credit, pension splitting, and combining medical expenses for higher deductions. It is important to update the CRA about any changes in relationship status, as it can impact tax obligations and benefits.
| Characteristics | Values |
|---|---|
| Definition of common-law partner | A person with whom you live in a conjugal relationship who is not your spouse, and he or she: has been living with you at least 12 continuous months (includes any period you were separated for less than 90 days because of a breakdown in the relationship); OR is the parent of your child by birth or adoption; OR 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 |
| Tax filing requirements | Each person must file their own tax return, indicating their marital status on the return. Both partners must disclose their relationship status and the partner's name, social insurance number, and net income (even if it's zero) on their returns each year. |
| Tax benefits | Common-law status may unlock eligibility for certain tax credits and benefits not available to single filers, such as the spousal tax credit, pension splitting, contributing to your partner's RRSP, Goods and Services Tax (GST)/Harmonized Sales Tax (HST) credit, the Canada Child Benefit, and the spousal amount tax credit, among others. |
| Tax implications of separation | If you have been separated for 90 days due to a breakdown of the relationship, the effective date of your separated status is the day you started living apart. If the separation occurs after filing your tax return and you continue to live separately for at least 90 days, you must notify the CRA of your change in marital status. |
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What You'll Learn
Common-law partners must file their own tax returns
In Canada, common-law partners are required to file their own individual tax returns with the Canada Revenue Agency (CRA). This is different from some other countries, such as the United States, where spouses or common-law partners can file joint tax returns. Each Canadian files their own tax return, regardless of their marital status. This means that common-law partners must each submit their own tax forms, which include their personal information, as well as their partner's name, social insurance number, and net income (even if it is zero).
The CRA defines a common-law partner as "a person with whom you live in a conjugal relationship who is not your spouse, and he or she: has been living with you at least 12 continuous months (including any period you were separated for less than 90 days because of a breakdown in the relationship); or is the parent of your child by birth or adoption; or 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".
It is important to note that if you are living in a common-law relationship, but do not file as such on your income tax return, you may be guilty of filing a fraudulent tax return and could face consequences. The CRA may ask you to prove your living situation and relationship status, and they use this information to assess your eligibility for various credits and benefits. By combining the household income of both partners, the CRA can determine eligibility for certain tax credits and benefit amounts, such as the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) credit, the Canada Child Benefit, and the spousal amount tax credit.
There are several benefits to filing taxes as a common-law partner. These include the ability to combine medical expenses to surpass the minimum threshold required for claiming these expenses on tax returns, maximising tax credits. Additionally, charitable donations can be combined to maximise tax credits, as higher donation amounts can qualify for larger credits. Common-law partners may also be eligible for the spousal tax credit, pension splitting, and contributing to their partner's RRSP.
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Common-law status may unlock eligibility for certain tax credits
In Canada, common-law couples are treated the same as married couples for tax purposes. However, common-law partners cannot file joint returns; instead, they must file individual returns and indicate their common-law status, combining their family income to determine eligibility for certain credits and benefits.
There are also income splitting opportunities, such as with certain pension incomes, potentially lowering the overall tax burden by allocating income to the partner in a lower tax bracket.
However, a higher combined income may reduce eligibility for certain income-tested benefits and credits, such as the Guaranteed Income Supplement. Therefore, it is essential for common-law couples to understand the tax implications of their relationship status and seek professional advice if needed.
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Common-law couples are treated the same as married couples
In Canada, common-law couples are treated the same as married couples for tax purposes. According to the federal Income Tax Act, a common-law partner is defined as:
> "A person with whom you live in a conjugal relationship who is not your spouse, and he or she: has been living with you at least 12 continuous months (includes any period you were separated for less than 90 days because of a breakdown in the relationship); OR is the parent of your child by birth or adoption; OR 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."
To be considered common-law, a couple must meet at least one of these conditions. It is important to note that the 12-month period does not need to be uninterrupted, as it includes any period of separation that is less than 90 days due to a relationship breakdown.
Once a couple is considered common-law, they must file their taxes accordingly. Both individuals must file their own tax returns, indicating their common-law status and providing their partner's name, social insurance number, and net income (even if it is zero). This allows the Canada Revenue Agency (CRA) to assess eligibility for various credits and benefits accurately, as it uses household income to determine eligibility.
There are several tax implications and benefits for common-law couples. One advantage is the ability to transfer certain tax credits from one spouse's return to the other's, such as the tuition amount, age amount, disability amount, and pension income amount. Additionally, common-law couples can combine certain expenses and credits, such as medical expenses and charitable donations, to maximize their deductions and pay less tax. They may also be able to split pension income to reduce their overall tax liability.
It is important to understand the tax implications of being in a common-law relationship. While common-law couples are treated the same as married couples in terms of tax rates, there may be benefits or credits that are only available to married couples or single individuals. Therefore, it is crucial to seek professional advice to ensure tax compliance and optimize one's tax position.
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Common-law partners can combine their medical expenses
In Canada, common-law partners are treated the same as married couples for tax purposes. Common-law status may unlock eligibility for certain tax credits and benefits not available to single filers, such as the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) credit, the Canada Child Benefit, and the spousal amount tax credit. One of the advantages of filing taxes as common-law partners is that they can combine their medical expenses to surpass the minimum threshold required for claiming these expenses on their tax return.
To be considered common-law partners, couples must live together in a conjugal relationship and have lived together for at least 12 continuous months, including any period of separation of less than 90 days due to things like work, school, health reasons, or incarceration. This definition also includes cases where one partner is the parent of the other's child by birth or adoption, or has custody and control of the child and the child is wholly dependent on that person for support.
When filing taxes as common-law partners, both individuals must disclose their relationship status, their partner's name, social insurance number, and net income on their separate tax returns. By doing so, the Canada Revenue Agency (CRA) can assess eligibility for various credits and benefits based on the household income.
Regarding medical expenses, common-law partners can combine their expenses to maximize their tax credits. This includes expenses for themselves, their dependants, and their children under 18. It is generally beneficial for the lower-income spouse to claim the family's medical expenses. However, when it comes to unused medical expenses from dependants over 18, it might be more advantageous for the higher-income spouse to claim this amount. It's important to note that only eligible medical expenses that have not been reimbursed can be claimed, and they must be claimed within the specified time frame.
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Common-law status impacts other benefits outside of yearly taxes
In Canada, common-law status impacts other benefits outside of yearly taxes. It is crucial to understand the implications of your relationship status on your tax obligations and financial planning. While the tax system in Canada does not allow spouses or common-law partners to file joint tax returns, common-law status may unlock eligibility for certain tax credits and benefits not available to single filers.
Common-law couples are treated the same as married couples under the federal Income Tax Act. The definition of a common-law partner under the Act includes living together in a conjugal relationship for at least 12 continuous months, including any period of separation less than 90 days due to a relationship breakdown. Alternatively, if one partner is the parent of the other's child by birth or adoption, or has custody and control of their dependent child, they are considered common-law.
The impact of common-law status on other benefits includes:
- Enhanced credits and benefits: Common-law status may provide access to tax credits and benefits such as the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) credit, the Canada Child Benefit, and the spousal amount tax credit.
- Income splitting opportunities: Common-law couples can take advantage of certain pension income splitting options, potentially lowering their overall tax burden by allocating income to the partner in a lower tax bracket.
- Pooling medical expenses: Common-law partners can combine medical expenses to surpass the minimum threshold for claiming these expenses on their tax returns, maximizing their benefits.
- Pension splitting: Common-law couples can split 50% of their pension income, resulting in a lower tax rate for each partner.
- RRSP contributions: The higher-earning partner can contribute to their partner's Registered Retirement Savings Plan (RRSP), reducing their tax liability while building their partner's retirement savings.
- Home Buyers' Plan: Eligibility for this plan and the Home Buyers' Amount may be impacted if one partner owns or has previously owned a home.
- Lifelong Learning Plan: Funds can be withdrawn from an RRSP for a partner's education.
- Child-related benefits: The lower-income partner typically claims child care expenses, but there are conditions where the higher-income partner may do so. The higher-income partner can also contribute to a spousal RRSP, which can be beneficial for income splitting.
It is important to note that failing to disclose common-law status to the Canada Revenue Agency (CRA) may result in penalties and consequences, as it is considered tax fraud. The CRA calculates government benefits based on household income, and changes in relationship status can impact eligibility for various credits and benefits.
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Frequently asked questions
A couple is considered common-law after living together for 12 months or if they have a child together and live together.
Common-law partners must file their individual taxes separately, but indicate that they are in a common-law relationship. You will need to include your partner's name, social insurance number, and net income on your return.
There are several benefits to filing taxes as common law, including the ability to combine expenses, increased borrowing ability for things like mortgages, and access to the same marriage benefits such as healthcare and hospitalization benefits, immigration benefits, and inheritance rights.
There are some benefits that single people receive that common-law partners do not, such as the GST/HST credit, as your household income may be considered too high. You may also lose certain credits, such as dependent credit, as only one of you may claim a child as a dependent.
