Filing taxes in Canada isn’t just about reporting your income – it’s also about relationships.
If you’re living with a partner, the Canadian Revenue Agency (CRA) may consider you a common-law couple, even if you and your partner don’t personally identify as such. But crucially, that relationship status can change how much you owe, or what tax credits you can claim.
So what does it mean to be common-law for tax purposes, and how does it compare to being married?
Key Points
- If you’re in a common-law relationship, it can affect your tax obligations, including eligibility for benefits and tax credits.
- You must update your relationship status with the CRA.
- Each individual must submit separate returns. There are no joint tax returns. However, couples must report their common-law status and their partner’s income on their separate returns.
- There are tax advantages to filing your taxes when in a common-law relationship, such as split pension income and spousal RRSP.
- There are also tax disadvantages, such as a reduced GST/HST credit or Canada Child Benefit.
Do You Have To File Taxes As A Common-Law Couple In Canada?
Yes, if you meet the CRA definition of a common-law couple, you must file your taxes accordingly.
Failing to report your common-law status properly can have both financial and legal consequences. While claiming “single” instead of “common-law” might seem like a minor issue, the CRA could consider that to be misrepresentation.
If the CRA notices an issue here, you could face reassessments of past tax returns, or be required to repay benefits (like the GST/HST credit or Canada Child Benefit) that you weren’t entitled to. It is also possible to be charged penalties – sometimes up to 50% of the amount owed.
When Are You Considered Common-Law For Tax Purposes?
For federal tax purposes, the CRA considers you to be in a common-law relationship if you and your partner have lived together in a conjugal relationship for at least 12 continuous months, or if you share a child by birth or adoption.
Note: The 12-month period can also include any periods of separation due to a breakdown in the relationship that amount to 90 days or less.
If you were separated from your partner for more than 90 days due to reasons other than a breakdown in relationship, such as living away for work, health or educational reasons, you can still be considered common-law.
Provincial vs. Federal Definition of A Common Law Relationship
Keep in mind that there are distinctions between federal and provincial definitions when it comes to common-law partnership. While the definition applies uniformly for federal tax purposes, provincial definitions of common-law relationships can vary, particularly concerning family law matters such as property rights and spousal support.
Learn more: How Living Common-Law Affects Your Finances
Do You Have To File A Joint Income Tax Return As A Common-Law Couple?
No, in Canada, the law does not require common-law couples (or even married couples) to file a joint income tax return.
Unlike in the U.S., where spouses can file jointly, the CRA requires each individual to file their own separate return. However, you must report your common-law status on your tax return and include your partner’s net income where required.
Even though you file separately, your tax situation with your spouse or common-law partner is still interconnected. Your combined household income can affect eligibility for certain benefits and tax credits, such as the GST/HST credit, Canada Child Benefit (CCB) and the Working Income Tax Benefit.
On top of that, certain deductions, such as medical expenses or charitable donations, may be optimized by claiming them on your partner’s tax return, if they’ve got a lower taxable income.
Benefits Of Filing As A Common-Law Couple
Choosing to file your taxes as part of a common-law couple can open up several financial advantages. Here’s how it works:
Transfer Unused Credits
One of the biggest benefits is the ability to transfer unused tax credits from one partner to another. If one of you doesn’t have enough taxable income to take full advantage of certain non-refundable tax credits, the unused portion can often be transferred to the other partner.
This includes credits like the basic personal amount, tuition amounts, as well as disability tax credits. By transferring credits, the higher-earning partner can reduce their taxable income, lowering your overall tax burden.
Combine Credits And Expenses
Common-law couples can combine eligible expenses to help maximize their tax deductions. This can be particularly helpful when it comes to medical expenses, which must exceed a certain percentage of net income to qualify for a deduction.
By pooling your expenses under the lower-income partner (who has a lower threshold to meet), a common-law couple can claim a higher amount and thus receive a larger refund.
Combine Charitable Donation Credits
The CRA offers a more generous tax credit for charitable donations that exceed $200.
Instead of claiming donations separately, common-law partners can combine their donations to surpass this threshold and receive a higher tax credit.
Split A Pension
If one common-law partner is in receipt of eligible pension income, they could allocate up to 50% of it to their common-law spouse for tax purposes.
This is particularly beneficial when one partner has a significantly lower income, as it helps lower the total household tax bill by shifting income into a lower tax bracket.
Pension splitting can also reduce the likelihood of Old Age Security (OAS) clawbacks for higher-income retirees.
Learn more: How Does Pension Income Splitting Work?
Start A Spousal RRSP
A common-law partner can contribute to a Spousal Registered Retirement Savings Plan (Spousal RRSP) on behalf of their partner, which allows the higher-earning spouse to benefit from the tax deduction, while helping the lower-earning partner accumulate retirement savings.
Drawbacks Of Filing As A Common-Law Couple
While there can be serious financial benefits to filing as a common-law couple, there is also the potential for some drawbacks that could negatively impact your tax return.
Loss Of Certain Tax Credits
Once you’re considered common-law, it’s possible that you could lose access to certain government benefits and credits that are based on individual income, rather than household income.
For example, programs like the GST/HST credit, the CCB and other income-tested benefits are calculated based on combined household income, meaning you may qualify for a lower amount, or lose eligibility altogether, if your partner pushes your household income over the threshold.
This can be a significant change for individuals who previously received these benefits when filing as “single.”
Increased Complexity Of Filing
Filing as a common-law couple does add an extra layer of complexity to filing your tax returns.
Unlike married couples, who may be more familiar with joint tax implications, common-law partners often face uncertainty about when and how their status affects their taxes, especially since federal and provincial definitions of common-law can differ.
Things like determining eligibility for various credits, income splitting and making sure your deductions are claimed correctly can require additional effort, or even professional tax assistance. This can make filing your taxes more stressful and time-consuming, not to mention costly, compared to filing as an individual.
Learn more: How To Pay Fewer Taxes In Canada
What’s The Tax Difference Between Being Married And Common Law?
The Canadian tax system treats married and common-law couples similarly, with no significant differences in tax obligations or benefits between the two. Both are required to file individual tax returns, indicating their marital or relationship status, and their partner’s information.
Both married and common-law partners can access similar tax benefits, such as transferring unused credits, combining certain expenses and splitting pension income.
And eligibility for income-tested benefits like the GST/HST credit and the Canada Child Benefit is based on combined family income, regardless of whether the couple is married or common-law.
Just remember that while the federal tax treatment is the same, some provinces may have different rules regarding common-law relationships, which could affect any provincial tax obligations or entitlements.
How To Update Your Relationship Status With The CRA?
Updating your relationship status with the Canada Revenue Agency (CRA) is essential to ensure your tax benefits and obligations are correctly calculated. If your marital status changes—whether you become common-law, get married, separate, or divorce—you must inform the CRA as soon as possible.
| Online CRA Account | You can update your relationship status with the CRA by logging in to your CRA MyAccount. Navigate to the “Personal Profile” section, where you’ll find the option to update your marital status. |
| By Phone | You can update your status by calling the CRA’s general inquiries line at 1-800-959-8281. A representative will ask for your personal details and the specifics of your status change. |
| By Mail | You can update your relationship status by filling out Form RC65 – Marital Status Change and mailing it to your local tax centre. |
How To File Your Taxes As A Common Law Couple?
When filing taxes as a common-law couple, there are several important details to update and review on your individual tax return. Here’s what you need to know:
Update Your Relationship Status
Make sure to mark your relationship status correctly as “common-law” on your tax return, and update your status with the CRA by one of the methods described above.
Provide Your Partner’s Information
Even if you don’t have children or aren’t claiming family-related benefits, you still need to provide details about your common-law partner.
This includes their income, especially if you’re claiming credits like the Spousal Amount, or applying for benefits that are based on household income. If your partner’s income is below a certain threshold, that could reduce your tax burden by allowing you to access specific credits or benefits that are only available to common-law couples, such as the spousal RRSP.
Report Family-Related Information if Applicable
If you do have children, you need to provide details for them, including their SIN numbers, when filing your tax return.
This is essential for claiming family-related benefits like the CCB, which is based on your total household income.
Adjust Deductions and Credits Based on Your Common-Law Status
Certain credits and deductions are impacted by your common-law status.
For instance, you can combine charitable donations and medical expenses with your partner to maximize these claims. You may also be eligible for income splitting opportunities, such as pension income splitting.
Even if you’re not claiming child-related benefits, reporting your common-law status can still open up other tax-saving opportunities.
Consider Using Tax Software or Seeking Professional Help
Given the added complexity of filing as a common-law couple, especially if you’ve got to consider eligibility for various credits, deductions and benefits, it can be helpful to use tax software or consult a tax professional.
This will help you to ensure that your return is accurate and that you’re taking full advantage of any available tax breaks.
Bottom Line
Filing taxes as a common-law couple in Canada comes with both responsibilities and potential benefits.
Understanding the federal tax definition of common-law, and what tax credits or deductions you can claim, can help you avoid penalties and maximize your tax return. Whether you’re looking to reduce your tax bill or simply stay compliant, it can pay to know the rules.
