Taxpayers in a common-law relationship should be aware of how their relationship status affects their income tax filing. To begin, let’s review the definition of living common-law according to the CRA:
- This person has been living with you in a conjugal relationship for at least 12 continuous months (includes any period you were separated for less than 90 days because of a breakdown in the relationship), or
- This person is the parent of your child by birth or adoption, or
- This person 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 them for support.
Common-law partners are required to complete separate tax returns that must include their common-law partner’s name, social insurance number, and net income.
There are advantages to filing common-law as you may be able to maximize certain tax credits including:
- Combining receipts for charitable donations
- Combining receipts for medical expenses
- Contribute to spousal RRSP
- Split the $5,000 Home Buyers tax credit (if first time home buyer) with your partner
- Splitting pension income
However, you may lose certain credits and benefits that you once had when you filed as an individual taxpayer. These include:
- Eligible dependent credit where one or both partners may be claiming if they supported a child
- GST/HST credit
- Canada Child Benefit (CCB)
- Guaranteed Income Supplement (GIS)
- Principal residence exemption
Under the Canada Income Tax Act, common-law partners are considered the same as married couples. By law, if you meet the definition of common-law partner, you are required by law to indicate as such on your income tax return.
You must notify the CRA if you became common-law by the end of the following month after your status changed.
Filing as common-law can get complicated. It’s always recommended to consult with a professional tax advisor. Contact us to learn about our tax preparation packages and see how we can help.