# Common Law in Income Tax Return



## HowIsMyFinancial (May 18, 2011)

Hi -

The upcoming tax return season - for the 2011 year - will be the first time I'll need to declare common law as I've been living with my gf for 1.5 years by now. Any pointers at what kind of things I should be looking at? 

A few points:

She's still student at school (last year) and I am working.
I have RRSP, she doesnt
No kids
Condo is under my name - I am paying the mortgage
Almost everything financial is completely separated, except for 1 joint account that we equally contribute to for our wedding fund.

Your advice would be greatly appreciated.

Thanks!


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## stardancer (Apr 26, 2009)

Not sure what you are asking for... You have to check off the c/l box, enter the date or status change, her name, her SIN and her net income in the ID section.

If GST credits have been involved and you/she hasn't informed the GST department, she may owe back. That is a separate issue from your tax return and they will contact her; or she could call and find out herself. They do not charge interest. The same goes for any provincial credits.

As she is a student, she has the option of transfering some of her tuition/education credits to you. Or she could keep them and use them when she starts working.

You have the option of opening a spousal RSP for her and using your contribution room.

Because your finances are completely separate, any investment income will be taxed in your individual names. As you get closer to being married, you should decide how you will divide the expenses and whether you will open any joint accounts to pay the bills. Also, as you go down the line, you will have to decide if you want any investments to be joint-ownership or not.

Hope this helps.


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## kcowan (Jul 1, 2010)

I recommend you go through the process of creating a prenup. This will force you to focus on financial issues that otherwise would not be addressed. You don't have to complete it or even do it jointly. Just complete the thought process.

The wedding fund is admirable. How about a living fund once she starts working?


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## HowIsMyFinancial (May 18, 2011)

Hi everyone - thanks for all the response

I actually I just want to double check if I really should tick the Common-Law box.

- We have been living together for the 1 1/2 years
- We are engaged
- Our financials are totally separated

I believe we should tick the box right?


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## MoneyGal (Apr 24, 2009)

Yes! Tick the box! If you don't, CRA is going to retroactively tick it for you once you actually get married and declare that on your tax forms.


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## OptsyEagle (Nov 29, 2009)

If she is not making any income, you going to clean up with the tuition credits and that really sweet marriage credit. So, yes, check it twice.

Keep in mind that it will negatively effect yours and definitely her, GST credits.


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## OhGreatGuru (May 24, 2009)

As MoneyGal says, Tick the Box. It is not optional. You are making a declaration of fact, not fiction.


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## MrMatt (Dec 21, 2011)

If she has no income, being married saves you tax money.
Tuition credit transfer is nice too.

Plus that whole don't lie on your taxes thing is a good idea too.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/prsnl-nf/mrtl-eng.html

a) has been living with you in a conjugal relationship for at least 12 continuous months;


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## Koala (Jan 27, 2012)

How does the government define a conjugal relationship though? I was curious about this and couldn't find a clear cut answer.


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## OptsyEagle (Nov 29, 2009)

Koala said:


> How does the government define a conjugal relationship though? I was curious about this and couldn't find a clear cut answer.


Just go to google and type in anything with at least three x's and you will soon find out.


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## Koala (Jan 27, 2012)

I think there is still a large grey area.


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## MoneyGal (Apr 24, 2009)

Nope. There's no grey area from CRA's point of view. 

The status of a relationship for tax purposes is a question of fact (again, from CRA's point of view) and the tax courts generally use seven criteria to establish whether you are in or not in a conjugal relationship. 

The search function on this site will bring up previous discussions on this topic, if you are interested.


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## Koala (Jan 27, 2012)

MoneyGal, I found your old post. I still see it as a grey area, but I don't know how many of the criteria have to be meet. I'll use my situation from when my husband moved in (when we were just dating):

1. Shelter: Do the parties live under the same roof and what are the sleeping arrangements? Same roof, different beds in different rooms. During spring/summer semesters he lived elsewhere.

2. Sexual and personal behaviour: Do the parties have sexual relations and do they maintain an attitude of fidelity to each other? Monogamous, I wouldn't feel comfortable sharing sexual behaviour with the government beyond that.

3. Services: What is the conduct and habit of the parties in relation to domestic services, such as preparing meals and performing household maintenance? Shared, similar to when I lived with my sister.

4. Social: Do the parties participate together in social activities? Sometimes.

5. Societal: How does the community view the parties, both individually and as a couple? We were a dating couple. We were more independent in some ways before we got married, and even before we were engaged.

6. Economic support: What are the financial arrangements of the parties in terms of their relationship? Separate finances. We split rent, I paid household bills, he paid for most (but not all) groceries.

7. Children: What is the attitude and conduct of the parties concerning any children? No kids.

Maybe there is a clear line with the government, but at the time I didn't know what it was.


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## MoneyGal (Apr 24, 2009)

And CRA says when you have been a "just dating" couple living under the same roof at the same address, after 12 continuous months (or earlier if you have a child together and in some other very specific child-related situations), you are married for tax purposes. 

And what *that* means is that your household income is pooled for some refundable tax credits, and you lose access to some elements of the tax system (only one principal residence exemption) but you gain access to others (spousal tax credit, interspousal loans, etc.)


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## financialnoob (Feb 26, 2011)

OptsyEagle said:


> Just go to google and type in anything with at least three x's and you will soon find out.


Well that was certainly eye-opening. Some of us are more visual learners.


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## MoneyGal (Apr 24, 2009)

taxxx?


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## OptsyEagle (Nov 29, 2009)

Koala said:


> MoneyGal, I found your old post. I still see it as a grey area, but I don't know how many of the criteria have to be meet. I'll use my situation from when my husband moved in (when we were just dating):
> 
> 1. Shelter: Do the parties live under the same roof and what are the sleeping arrangements? Same roof, different beds in different rooms. During spring/summer semesters he lived elsewhere.
> 
> ...


This part is all my opinion on this one. My answer: Do what works best for you.

It is my opinion that it is very unlikely that CRA is going to argue whatever you decide, when it comes to common law marriage (unless you have children together, since then, you are kind of busted).

It would be a nasty, speculative case on CRA's part, contesting someone that said they were single and except for a little GST credit, they have very little to gain on this one. So do what you want.

As for the original poster. He can't lose. He will gain a minimum of $2,000 as soon as he ticks that box and since he will be legally married by the time his girlfriend starts causing a problem with that married credit, he has very little downside.


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## MoneyGal (Apr 24, 2009)

OptsyEagle said:


> It is my opinion that it is very unlikely that CRA is going to argue whatever you decide, when it comes to common law marriage (unless you have children together, since then, you are kind of busted).
> 
> It would be a nasty, speculative case on CRA's part, contesting someone that said they were single and except for a little GST credit, they have very little to gain on this one. So do what you want.


It's very, very, very likely. Very likely. CRA routinely matches returns based on the same address.

It's not "nasty and speculative" on CRA's part. CRA is looking to see if those two people have formed an economic unit as a household and, if yes, they will calculate refundable tax credits based on the net household income, not the individual incomes.

CRA has more to gain than "a little GST credit." I can think of a handful of reasons for people to try to game the tax system by falsely declaring their marital status. 

Also: it isn't CRA's gain. 

Finally, I do think that people should do what they want, but they should be aware of the consequences.


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## OptsyEagle (Nov 29, 2009)

MoneyGal said:


> It's very, very, very likely. Very likely. CRA routinely matches returns based on the same address.


They can match all they want. From simply a tax point of view, without children, there is not that much left for CRA to get. 

Anyway, when I was in that situation, there was a reason why I was living with a girl and not marrying her and I didn't like the idea that anyone was going to tell me I was married until  I decided I was. I didn't make my election to save tax or GST (I don't think I saved any), I did it out of principle.

I am not saying that a person can just decide to ignore a law they don't like but in this case, I strongly doubt a person will have a problem. My analogy only applies to those without children and those who have lived together for less then 3 years or so.

If you have a problem with virtuous lies then check off the box. If you feel a virtuous lie trumps an unjust law, then decide for yourself. That is my opinion.


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## HowIsMyFinancial (May 18, 2011)

MrMatt said:


> If she has no income, being married saves you tax money.


Just wondering what exactly would save me tax money if I just declare common-law (apart from taking her tuition credit) ?



OptsyEagle said:


> As for the original poster. He can't lose. He will gain a minimum of $2,000 as soon as he ticks that box


Can you be more descriptive of what exactly would save me $2,000 ?


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## MoneyGal (Apr 24, 2009)

But CRA isn't saying you are married in any kind of emotional or moral sense - just that they are calculating tax benefits and requirements _based on your household as an economic unit_. And surely that's why you live with someone else, if you don't want to actually legally marry them...? Otherwise, why would you live together at all? 

Also - the main benefit that people could get by attempting to game the tax system in this way (that I can think of off the top of my head) is two principal residence exemptions, for what it's worth. That's potentially a much, much larger benefit than GST credits. 

CRA isn't "telling you" that you're married. They're telling you they're going to apply the tax rules in a certain way. In fact, anyone who felt that they were actually married based on the tax rules would be in for a big surprise if they tried to action this in divorce court for the division of family property.


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## OptsyEagle (Nov 29, 2009)

In 2011 Line 303 on schedule 1 allows for a spousal tax credit of $10,382. In Ontario that would save you about 20% of that amount in combined federal and provincial income taxes. That equals $2,076. Can you say ... REFUND.

The credit is reduced dollar for dollar by the income of your spouse. So once she earns over $10,382 in a given year, the tax credit is gone.


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## jazzalbart (Apr 23, 2012)

If you are going to live common-law, do your research. If after living common-law you separate, the division of your property and assets is NOT the same as if you were married.


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## HowIsMyFinancial (May 18, 2011)

I started this thread a while ago asking whether I should tick the box as common-law or not.

I have a follow up question: So we've been living together since late 2010, the entire 2011 and hence I ticked the common-law box last year.
However between Sept 2012 - April 2013 my common law partner is living in another city (although she still comes back to Toronto almost every weekend).

Given that as part of the requirement for ticking the "common law" box in 2012 was that we've been living together for 1 year - how would the fact that the last 4 months of 2012 she's living separately affect my return this year? Should I still tick the common law box?


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## MoneyGal (Apr 24, 2009)

Once you are married for tax purposes, you stay married for tax purposes until you declare that the marriage is over. So, is the relationship over? Is she coming back to live with you in 2013?


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## kcowan (Jul 1, 2010)

+1 MG
You are commonlaw in 2012. In 2013, it will depend on what she does and how you interpret it.


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## carverman (Nov 8, 2010)

Koala said:


> How does the government define a conjugal relationship though? I was curious about this and couldn't find a clear cut answer.


I thought that Trudeau said a few years ago.."the gov't has no business in the bedrooms of the nation "....if it was good enough for us then , under Tru-dough, then it should be good enough for us now.


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## carverman (Nov 8, 2010)

kcowan said:


> +1 MG
> You are commonlaw in 2012. In 2013, it will depend on what she does and how you interpret it.


There is also a "separated" box to tick off..and you don't need a legal separation agreement to be separated either. 
Years ago, I was married as far as CRA was concerned.
When we split up, we had no legal separation agreement, just an understanding it would lead to divorce. 
When I ticked off "separated" in the taxation year we split up, CRA accepted it on my return. 
There was no followup investigation, neither when I ticked off "divorced" on the box for the tax return in the year I was finally divorced.

They (CRA) don't care if you are filing separate tax returns..as long as you are not trying to claim credits equivalent to being married.


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## HowIsMyFinancial (May 18, 2011)

MoneyGal said:


> Once you are married for tax purposes, you stay married for tax purposes until you declare that the marriage is over. So, is the relationship over? Is she coming back to live with you in 2013?





kcowan said:


> +1 MG
> You are commonlaw in 2012. In 2013, it will depend on what she does and how you interpret it.





carverman said:


> There is also a "separated" box to tick off..and you don't need a legal separation agreement to be separated either.


There's no separation here :chuncky:
I did mention she still come back every weekend ... lol, she's just completing internship position out of town, so weekday she's out of town, most weekend she's back in Toronto. The program ends April 2013, she'll be back living with me full time then.

My concern is that because we are filling as common law (as I mentioned because we've been living together), but this time around she'll be claiming her out-of-town rent which kinda show that we are not living together (although we are together relationship-wise).


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## MoneyGal (Apr 24, 2009)

CRA doesn't care. You can be married and maintain separate residences; lots of people do, for whatever reason (spouse works in a different city, spouse in a post-secondary program in a different city or country, whatever). CRA cares when you try to get refundable tax credits (primarily Canada Child Tax Benefits) illegally because you are not disclosing your common-law marriage status. 

They may, however, ask you to explain the rent credit, in which case you'd just write them a letter explaining exactly what you've explained here. 

(Aside: the most complicated situation I ever had to explain to CRA - not for me personally - was for someone who got divorced, and then got pregnant and had a child by a different person, not her ex-spouse, and not a Canadian. CRA couldn't understand how all these things happened in one year!)


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