Although there are similarities between the laws for common –law and married couples in Ontario, there are significant differences you should know about- especially in the areas of tax planning, family law and estate planning.
The definition of “common- law partner” means a person who cohabits with another person in a conjugal relationship, for either:
- A period of 12 months; or
- A shorter period of time, but while raising a child together. (Simply having a child together is not sufficient to be considered to be living common-law. You must also be living in a conjugal relationship. Also, the child has to be the natural or adopted child of both partners; if not, then the step parent must be providing support to the child).
If you meet either of the above two tests, you must indicate that you are living common-law on your tax return. If you have filed a fraudulent tax return, you may be denied CPP or other pension survivor benefits, or alternatively, you may be reassessed for unpaid taxes, interest and penalties.
There are a number of advantages and disadvantages to being considered a couple under the Income Tax Act, depending upon your situation. Some of the advantages include the ability to allocate certain types of pension income to a lower income – earning spouse, and the ability to transfer certain types of personal tax credits in order to ensure that none of them go unused. However, some of the disadvantages include the loss of the eligible dependant credit, which one or both partners may be claiming if they are raising a child, as well as the potential loss of some social assistance benefits, as the income for both partners must be pooled for the purpose of determining eligibility for certain amounts, including the Guaranteed Income Supplement and the allowance, the GST credit and the Canada Child benefit. If both partners are earning an income, the ability to receive these amounts or claim these credits decrease more quickly.
If you have questions about living common-law, I would be happy to help.