Common Law Couples Due to changes announced in the Federal by ramhood3


									                                                  Common-Law Couples
Due to changes announced in the 1992 Federal Budget, common-law couples have, essentially,
gotten "married" for tax purposes.

Canada Revenue Agency considers common-law couples to be "spouses", therefore, say good-
bye to any tax advantages you enjoyed by not tying the matrimonial knot.

A common-law spouse is defined to include a person of the same or opposite sex who has
cohabited with the taxpayer for at least a year in a conjugal relationship, or who is a parent of
the taxpayer's child. This means that a newborn creates a marriage before the one year rule.

Common-law couples who meet the above definition should consider the following tax

    1. May be eligible for the married credit if the spouse's income is below the threshold
    2. No longer eligible for the equivalent-to-married credit.
    3. The spouse with the lower net income must deduct child care expenses.
    4. Both spouses' incomes will affect the goods and services tax credit and the child tax
    5. Only one principal residence designation may be made per family
       unit, therefore, the spouses will be entitled to only one principal
       residence exemption, rather than two.
    6. One spouse may transfer unused credits, such as the pension,
       disability, age, education and tuition credits, to the other spouse.
    7. One spouse may deduct the medical expenses and donations
       made by the other spouse.
    8. One spouse may make a spousal registered retirement savings plan contribution for the
       other spouse.

One interesting twist (perhaps we should say tryst) is that a person may have two spouses for
tax purposes - for example, a common-law spouse and the person that he/she is still legally
married to. This brings to mind the possibility of an unintended tax break. As the married credit
is available if the taxpayer supported a spouse during the year, presumably the taxpayer may
maximize the credit by designating either spouse - married or common-law - according to who
has the lowest net income.

An unintended consequence could happen if you are not forthcoming with declaring yourself as
being in a common-law. The relationship breaks down and you decide to demand alimony. In
court your signed tax return is presented declaring you as single. What a dilemma! The case
for alimony could be (and has been) thrown out. No alimony!

The truth is the best policy – see your advisor at MacKay LLP.

           This document is general in nature and should not be relied upon to replace specific professional advice.

MacKay LLP Chartered Accountants

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