How Does Living Common-law Affect Income Tax in BC? - Zukerman Law

How Does Living Common-law Affect Income Tax in BC?

For many couples in British Columbia, choosing a common-law relationship offers a strong sense of commitment. However, compared to marriage, there can be significant differences in how the Canada Revenue Agency (CRA) treats common-law couples for tax purposes. Understanding these distinctions is crucial for filing your taxes accurately and avoiding potential complications.
This blog post explores the key aspects of income tax filing for common-law couples residing in British Columbia. We will explore how the CRA views common-law relationships, filing requirements, and potential benefits or considerations specific to this relationship status. By clearly understanding these tax implications, you can approach tax season more confidently and ensure both partners fulfill their tax obligations in British Columbia.

Who Qualifies as a Common-Law Partner for Tax Purposes in BC?

Who Qualifies as a Common-Law Partner for Tax Purposes in BC?

The Canada Revenue Agency (CRA) adheres to the definition of common-law partner outlined in the federal Income Tax Act. This definition determines how common-law couples are treated for tax filing purposes in British Columbia, placing them on equal footing with married couples.
Here’s a breakdown of the criteria used by the CRA to identify common-law partners for tax filing:

  • Marital Relationship and Cohabitation: You must cohabitate with your partner in a conjugal relationship. This implies a romantic relationship with a level of commitment similar to marriage. The cohabitation must be continuous for at least twelve months. Even brief separations of less than ninety days due to relationship difficulties won’t necessarily disrupt the common-law status for tax purposes.
  • Parenthood: If you share a biological or adopted child with your partner, you are considered common-law partners for tax filing, regardless of the cohabitation duration.
  • Custody and Support: In situations where your partner has custody and control of your child (or previously held custody until the child reaches nineteen years of age) and provides primary financial support, this can also establish common-law status for tax purposes.

Tax Implications of Common-Law Relationships in BC

While common-law relationships offer a strong alternative to marriage, understanding how the CRA treats them for tax filing purposes is crucial. This section explores the similarities and potential considerations for common-law couples residing in British Columbia.
The CRA recognizes common-law partners who meet the outlined criteria equivalent to married couples for tax purposes. This means shared access to specific tax benefits, credits, and deductions. Here are some notable advantages:

  • Spousal Amount Tax Credit: Both federal and provincial spousal amount tax credits become available if you financially support your common-law partner during the tax year.
  • Spousal RRSP Contributions: Contributing to your partner’s Registered Retirement Savings Plan (RRSP) becomes an option, potentially enhancing your combined retirement savings strategy.
  • Combined Medical and Charitable Donations: When filing your tax returns, you can combine medical receipts and charitable donations, potentially maximizing the deductions claimed.
  • Transfer of Unused Tax Credits: Similar to married couples, common-law partners can transfer unused tax credits, such as those for post-secondary education, disability, age (over 65), or pension income, to their partner, potentially reducing the household tax burden.

While common-law relationships offer access to tax benefits, there are also considerations to keep in mind!
The CRA combines your family income when determining your eligibility for specific government benefits, such as the GST/HST credit, Canada Child Benefit, eligible dependent credit, and Guaranteed Income Supplement and Allowance. Filing as a single individual may affect your eligibility.

Filing Your Taxes as a Common-Law Partner in BC

Filing Your Taxes as a Common-Law Partner in BC

So, do you and your partner qualify as common-law under the CRA’s definition? Great! Filing your taxes is a straightforward process. Here’s what you need to know:

  • Relationship Status: On your tax return submitted to the Canada Revenue Agency (CRA), indicate your common-law relationship status.
  • Separate Filings: Although considered a couple for tax purposes, each partner must file their tax return with the CRA.
  • Partner Information: While filing your return, include your partner’s details, such as their full name, social insurance number, and net income (even if it’s zero).

Remember, the CRA uses your combined household income to determine your eligibility for government benefits and tax credits. This means their assessment will consider both your incomes when calculating these benefits.

Navigating Taxes After Separation as a Common-Law Couple in BC

Navigating Taxes After Separation as a Common-Law Couple in BC

Common-law relationships offer a strong foundation for many couples in British Columbia. However, navigating the tax implications after separation introduces new considerations. The CRA definition of a common-law relationship acknowledges brief separations. Even if you’ve been separated for less than ninety days within a twelve month period due to relationship difficulties, you’ll still be considered common-law for tax purposes.
Only separations exceeding ninety days establish your “separated” status for tax filing. The ninety-day separation period effectively begins on the day you start living apart. Following a more than ninety-day separation, you must notify the CRA of your changed relationship status through your My Account for Individuals online portal. This notification can impact your eligibility for certain benefits and potential tax payments owed.
Filing your taxes accurately and transparently is essential, regardless of your relationship status. Misrepresenting your relationship status on your tax return is against the law. The potential consequences include;

  • reassessment of your taxes,
  • incurring interest and penalties on unpaid taxes and
  • even jeopardizing your entitlement to CPP and other survivor benefits.

Remember, common-law couples are treated the same as married couples for tax purposes.
While there are advantages and disadvantages to filing as a common-law partner compared to single status, if you meet the CRA’s definition of a common-law relationship, you have a legal obligation to disclose your relationship status and your partner’s information when filing your tax return. Understanding these post-separation tax considerations and maintaining transparency with the CRA can ensure a smoother transition and avoid any potential complications.

The Bottom Line

In conclusion, understanding how common-law relationships affect your taxes in British Columbia is essential. While filing jointly offers access to valuable benefits and credits, remember to disclose your relationship status accurately and navigate any separations with the CRA to avoid complications. Following these guidelines and consulting a qualified tax professional can ensure a smooth tax season and a secure financial future, regardless of your relationship status.
Zukerman Law can be a valuable resource for residents of British Columbia in common-law relationships. Our experienced family law and tax lawyers can guide you through the intricacies of filing your taxes as a common-law couple and address any legal questions. Contact Zukerman Law today to schedule a consultation and ensure you maximize your tax benefits while fulfilling all your legal obligations.

author

Stuart Zukerman

Stuart Zukerman, a graduate of the University of British Columbia, has over 32 years of experience in litigation with a focus on Family Law, Personal Injury, Wrongful Dismissal claims, and Collaborative Divorce & Mediation. He has extensive trial experience in divorce, child custody, spousal support, asset division, and ICBC injury claims. As an accredited Family Law Mediator, he helps resolve disputes without court intervention. Stuart has also authored papers on family law and lectured at CLE courses.