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Living Common-Law

Are you in a common-law relationship?

During 1980, there was an Ontario Superior court decision that eventually was approved by the Supreme Court of Canada (“SCC”). The decision of the courts has outlined the conditions individuals must meed to be considered living in a common-law relationship (The court case is Molodowich v. Penttinen (4263 AD1979)).

What are the conditions to be considered when determining whether or not you are living in a common-law relationship?

  1. Arrangements for shelter
    1. Your living conditions are taken into account; consider:
      1. Were you living under the same roof as other individuals? 
        1. If there were multiple individuals under the same roof:
          1. What were the sleeping arrangements?
          2. Where there more than two individuals?
            1. If so, you should consider this listing for each individual.
  2. Arrangements for sexual and personal behaviour.
    1. Did you have sexual relations?
      1. If not, why?
    2. Did you purchase gifts for special occasions?
    3. Did you communicate on a personal level?
    4. How did you interact with the individual(s)?
    5. Was there a sense of fidelity?
  3. Arrangements for domestic services.
    1. What is the arrangement for household tasks such as:
      1. Washing and mending cloths
      2. Preparation of meals
      3. Shopping
    2. The activities you perform within the residence will be considered.
  4. Social activities.
    1. Did you attend social events together or separately?
    2. What is the view of your family with respect to the individual in question?
  5. The attitude and conduct of the community toward the couple.
    1. What is the perception of your neighbors of your relationship?
  6. Financial arrangements, and
    1. Did you financially support the individual?
    2. Do you have joint accounts such as a joint credit card or joint chequing account?
    3. Is there any financial arrangement?
  7. The attitude and conduct of the couple toward children.
    1. What is the perception of children between the parties?

The precedent outlined within the case has survived until today. It is important to note that no one characterist is a determinant.

Why does it matter?

CRA treats people living in a common-law relationship the same as married individuals. Therefore, CRA required married individuals to report some information about their partner on their tax returns. CRA uses the data to compile household income to determine the eligibility of certain tax credits. 

What if I am living in a common-law relationship and choose not to report it?

CRA may deem your tax filing as fraudulent. At the determination of fraudulent tax returns, CRA may re-assess the tax returns in question and charge interest and penalties. CRA could also deny certain benefits such as the Canada Pension Plan(“CPP”)

How can I file my tax return

CRA requires each individual to file their own tax returns. You will need to provide your partner with certain financial information.

Are there any advantages of filing a tax return as a common-law partner?

Each partnership will have their unique tax situation as such the advantages available will not always be present.

You may be able to maximize certain tax credits and deductions such as:

  • Combine receipts such as medical expenses and charitable donations to maximize your credits and pay less tax
  • Family Tax Cut (for couples with at least one child under 18),
  • Contribute to a spousal RRSP
  • Claim both the federal and provincial (if applicable) spouse or common-law partner amount tax credit if you supported your partner financially and they earned below a certain amount for the year
  • Transfer particular credits to your partner such as the Disability Tax Credit

Are there any disadvantages of filing as a common-law partner?

As some credits are calculated on household income, you may lose or have a reduction of some benefits. Additionally, CRA has certain requirements for reporting particular benefits such as reporting for eligible dependent credit being recorded on the lower income partner.

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