Did you know that the Canada Revenue Agency and the province have different definitions of what constitutes a common-law relationship?
The CRA considers you common-law if you have been living together for over a year. (If you have a child together, you are considered common-law regardless of the amount of time you’ve lived together).
The province of Ontario considers you common-law if you’ve been living together for at least three years. If you have a child together, the province considers you common-law after one year.
Why should you care? If you’re in a relationship where both people are earning a medium income and are pretty similar, you probably wouldn’t notice a big difference when filing as a single person or filing together.
Where you’ll notice the difference is when there is an income disparity. If one person earns a lot of money and the other doesn’t, the one on the lower end is likely used to receiving benefits such as Ontario Trillium and GST/HST rebates. Once you’re considered common-law by the CRA, your combined income may very well not qualify you for these rebates and the government will gently ask for their money back.
It’s not unusual for many couples to keep their finances separate and want to extend this practice to their taxes.
The issue is that the CRA doesn’t give you an option and it knows where you live. If you and your partner file taxes from the same mailing address, you may receive a letter from the CRA inquiring about your status. Then it’s up to you to prove that you’re not in a conjugal relationship. A year goes by quickly and sometimes couples are caught off guard.
If you moved in with someone in the summer of 2018, surprise! You’re now common-law and any benefits one of you received in the second half of 2019 may be revisited.
Chances are it’s not going to be a huge amount of money, but it’s better not to owe it. What I recommend doing is filing a change of marital status note with the CRA and they’ll go back and recalculate those credits.
If the combined income no longer qualifies you for the benefits, then at least you won’t have to pay anything back. If two individuals are low income, they will combine the credits onto one person.
Fun fact (fun at least to an accountant)
The CRA has six boxes for marital status (look them up).
From a tax standpoint, you either have a spouse or you don’t, the only reason there are six boxes is to clear up confusion about what box you check or what your status is.
If you’re like my grandmother and your husband dies, you don’t want to say single, you say widowed. The same thing applies to those who are divorced. Maybe there’s a stigma about being single?
And what do you do with if you’re legally separated but not yet divorced? That’s why they have six boxes.
Keep your records up to date with the CRA and let it update its records so you don’t get surprises when you’re doing your taxes.