Whether you and your partner file as common-law is more a matter of fact than it is a choice. The CRA considers an unmarried couple who have been living together in a conjugal relationship for 12 continuous months as common-law.

There are several benefits to filing as common-law that can help reduce your combined tax bill, including:

  • Transferring unused tax credits between returns,
  • Applying certain credits to the higher income partner who’s taxed at a higher rate,
  • Ability to use a partners’ basic personal credits if they are financially dependant, and
  • Splitting pension income across returns.

When filing as common-law, the CRA consider you and your partners combined income to calculate entitlement to certain tax credits. Combined with other limitations, the primary drawbacks to filing as common-law are:

  • Reduced or eliminated GST credit,
  • Reduced or eliminated Canada Child Benefit,
  • Loss of the eligible dependent credit, and
  • Splitting the First Time Home Buyers credit.

Note that the treatment of common-law partners is the same as for married couples for tax purposes.

Filing your tax return is a relatively similar process whether you file as single or common-law. The only change is the CRA will require information about your common-law partner, including their SIN, date of birth, and net income. We recommend common-law partners file together, either using the same software or accounting firm, to streamline the information sharing across returns.

If the CRA finds you and your partner have been misrepresenting your relationship status by filing as single, there could be a significant bill. Any years where you are deemed to have been in a common-law relationship will be reassessed. You will be liable for any over-claimed tax credits, plus interest and penalties on the balance to date. However, you may be able to file amendments to claim the applicable benefits listed above.

If you are unsure of how to file this year or concerned you may have misrepresented yourself in a previous year, let your accountant know. An accounting practitioner will be able to quantify the risk, advise on the best course of action, and help protect you from the CRA.

Written by: Curtis Reeve, CPA

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