Gavin Howe
In Canada, common-law relationships are legally recognized and considered equivalent to marriages for tax purposes. This means that common-law couples must disclose their status when filing their taxes and cannot file as single individuals. The definition of a common-law relationship varies slightly across provinces, but it generally refers to unmarried couples who have lived together in a conjugal relationship for at least 12 continuous months or who have a child together. Failing to disclose common-law status when filing taxes can result in penalties and retroactive tax adjustments. It is important for individuals in common-law relationships to understand their rights and obligations, especially when it comes to tax filings and potential tax benefits or credits they may be eligible for as a couple.
| 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 |
| Common-law couples and tax treatment | Common-law couples are treated the same as married couples. |
| Common-law couples and tax filing | Common-law couples in Canada are not allowed to file a joint return; instead, they each file single returns and mark that they’re in a partnership. |
| Failure to declare common-law status | If you fail to list your common-law status, there may be penalties relating to benefits you receive that you would not have qualified for if you listed your common-law partnership. |
| Common-law couples and tax credits | Common-law couples can transfer some tax credits from one spouse’s return to the other and claim all or part of certain amounts that the other spouse qualifies for, if they do not need to use them. |
| Common-law couples and pension income | Common-law couples can split pension income to reduce their overall tax liability. |
| Common-law couples and tax deductions | Common-law couples can deduct contributions made to a spouse's RRSP from their taxable income. |
| Common-law couples and tax refunds | Common-law couples can share some of their nonrefundable tax credits with each other to increase their refunds. |
| Common-law couples and tax liabilities | Common-law couples can reduce their overall tax liability by sharing certain credits. |
| Common-law couples and tax benefits | Common-law couples can maximize certain tax credits and deductions when filing as a common-law partner. |
| Common-law couples and tax credits for children | Common-law couples can claim the Family Tax Cut if they have at least one child under 18. |
| Common-law couples and tax credits for homeowners | Common-law couples can claim the entire $5,000 Home Buyers tax credit amount for new homeowners in the year they buy their first home. |
| Common-law couples and tax credits for education | Common-law couples can transfer credits for post-secondary education, such as tuition and textbook credits. |
| Common-law couples and tax credits for disability | Common-law couples can transfer the Disability Tax Credit amount to the supporting family member, including a spouse. |
| Common-law couples and tax credits for age | Common-law couples can claim all or part of their spouse's age amount or transfer their age amount to them. |
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What You'll Learn
Common-law status and tax fraud
In Canada, common-law status refers to a couple that lives together and shares a conjugal relationship without being legally married. Under the federal Income Tax Act, common-law couples are treated the same as married couples. Each partner must file their own tax return, but they are considered a couple for tax purposes, and their combined household income is used to determine eligibility for government benefits and tax credits.
When filing taxes, common-law partners must indicate their relationship status and include their partner's details, such as their full name, social insurance number, and net income. Failing to disclose a common-law partnership and filing as single instead is considered tax fraud.
There are several advantages and disadvantages to claiming common-law status on taxes. One advantage is the ability to transfer and share certain tax credits with a partner. For example, tax credits for tuition, disability, age, or pension income can be transferred to the other spouse if not fully utilized. Common-law partners can also combine their medical and charitable donation receipts to maximize deductions.
On the other hand, a significant disadvantage is the change in eligibility for certain government benefits and tax credits. Claiming common-law status may lead to a reduction or change in benefits such as the GST/HST credit, Canada Child Benefit, Guaranteed Income Supplement, and Working Income Tax Benefit. Additionally, common-law partners may face limitations in other areas, such as claiming only one exemption from capital gains on their primary residence.
It is important to note that a change in relationship status, including separation, can impact tax credits and benefits. To be considered officially separated by the CRA, a couple needs to be apart for at least 90 days. When filing a return for the year of separation, the claim for the common-law partner amount is calculated using the partner's net income before the date of separation.
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Common-law and tax credits
In Canada, common-law couples are treated the same as married couples under the federal Income Tax Act. To be considered a common-law couple, the pair must live in a conjugal relationship for at least 12 continuous months, including any period of separation that is less than 90 days. Alternatively, one partner is the parent of the other's child by birth or adoption, or has custody and control of their shared child/children.
In terms of tax credits, common-law couples can combine receipts for medical expenses and charitable donations to maximize credits and reduce their tax bill. They can also claim the Family Tax Cut if they have children under 18, the federal and provincial spouse or common-law partner amount tax credit if one partner financially supported the other and they earned below a certain amount, and the $5,000 Home Buyers tax credit amount. Additionally, they may be able to transfer credits to each other, such as credits for post-secondary education. However, filing as a common-law couple may result in the loss of certain tax credits that were available when filing as a single person, as the combined income may make the couple ineligible.
When filing taxes, the net income of the common-law partner must be included on the tax return. If the couple separated in 2024 due to a relationship breakdown and did not reconcile by December 31, 2024, the claim should be reduced by the amount of the partner's net income before the separation. If the couple did reconcile and were living together on December 31, 2024, they can claim an amount on line 30300 of their return and any allowable amounts on line 32600.
To be considered officially separated by the CRA, common-law couples must be apart for at least 90 days. When filing a return for the year of separation, the claim for the common-law partner amount is calculated using the partner's net income before the date of separation.
In the United States, there are various tax credits available to eligible taxpayers, such as the Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit. These credits can help reduce the taxpayer's tax liability and potentially increase their refund.
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Common-law and tax returns
In Canada, common-law couples are treated the same as married couples under the federal Income Tax Act. A common-law partner is defined as someone with whom you live in a conjugal relationship, and who is not your spouse, if:
- They have been living with you for at least 12 continuous months (including any period you were separated for less than 90 days due to a breakdown in the relationship).
- They are the parent of your child by birth or adoption.
- They have custody and control of your child (or had custody immediately before the child turned 19) and the child is wholly dependent on them for support.
If you are in a common-law relationship, you must file as common law on your tax return. You and your partner must each file your own tax returns, indicating your marital status and providing the other person's name, social insurance number, and net income. This is important, as failing to do so may be considered tax fraud, and you may face consequences such as reassessment for unpaid taxes, interest, and penalties.
There are several tax credits and deductions that are affected when filing as a common-law partner. Some advantages of filing as a common-law partner include:
- Income splitting: Couples can reduce their tax burden by splitting income between spouses, leveraging lower tax brackets, and maximizing deductions.
- Combined deductions and credits: Couples can combine or transfer credits like spousal amounts, medical expenses, and charitable donations to maximize tax savings.
- Canada Child Benefit (CCB): Couples with children can increase their benefits based on combined income, especially if one spouse has low or no income.
- GST/HST credit: Couples can increase potential payments based on combined family income.
However, when filing as a common-law partner, you may also lose some tax credits that you were entitled to when filing as a single person due to your combined income making you ineligible.
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Common-law and separation
Common-law relationships are defined by living in a conjugal relationship with a person who is not your married spouse, with at least one of the following conditions applying:
- The person has been living with you for at least 12 continuous months (including any period separated for less than 90 days due to a relationship breakdown).
- The person is the parent of your child by birth or adoption.
- The person has custody and control of your child, and the child is wholly dependent on them for support.
Separation occurs when partners in a common-law relationship begin living separately and are no longer 'partners'. If there is a cohabitation agreement in place, it may outline the terms of separation. If not, a separation agreement can be made, which usually includes sections on parenting arrangements, support issues, and the division of property, assets, and debts.
It is recommended that both parties seek independent legal advice to ensure their rights and responsibilities are understood and that the agreement is fair. Separation agreements are private contracts that need to be signed by both parties, witnessed, and dated.
When it comes to taxes, common-law couples are treated the same as married couples. To be considered officially separated by tax authorities, a separation period of at least 90 days is required. After separation, adjustments to benefit and credit payments will be made based on the updated marital status and the respective incomes.
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Common-law and child tax credits
In Canada, common-law couples are treated the same as married couples under the federal Income Tax Act. A common-law partner is defined as someone with whom you live in a conjugal relationship, and who is not your spouse, but with whom you have lived for at least 12 continuous months, or is the parent of your child by birth or adoption, or has custody and control of your child.
Common-law status impacts the amount of benefit and credit payments received, as these are calculated based on the adjusted family net income (AFNI), which includes the income of the common-law partner. When filing taxes, the net income of a common-law partner must be included, and this amount is subtracted by the CRA in the calculation of credits and benefits.
Common-law partners can combine receipts for medical expenses and charitable donations to maximize their credits and pay less tax. They can also claim the Family Tax Cut if they have children under 18, the federal and provincial spouse or common-law partner amount tax credit if they financially supported their partner, and the Home Buyers tax credit if they are new homeowners. They may also be able to transfer credits to their partner, such as credits for post-secondary education.
In the case of separation, to be considered officially separated by the CRA, common-law partners must live apart for at least 90 days. When filing a return for the year of separation, the claim for the common-law partner amount is calculated using the partner's net income before the date of separation. An amended return must be filed to adjust entitlement for any credits claimed or to apply for new credits.
In the United States, the Child Tax Credit can be claimed for each qualifying child with a valid Social Security number for employment in the US. Qualifying children must be under 17 at the end of the tax year, not provide more than half of their own support for the year, live with the claimant for more than half the tax year, and be claimed as a dependent on the tax return. Parents and guardians with higher incomes may be eligible to claim a partial credit.
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Frequently asked questions
The Canada Revenue Agency (CRA) considers you to be in a common-law relationship if you have lived together with your partner for more than 12 consecutive months, or if you have a child together, or if one of you supports the other one's child.
Common-law spouses can combine medical expenses and donations and may receive larger combined tax savings than when filing as single individuals. If their income was low, partners can claim a tax credit known as the spouse or common-law partner amount.
You should notify the CRA by the end of the month following the month your status changed. In the year you hit the 12-month mark, you should file your tax return as common-law.
