Quite often I am asked the question, “is it more beneficial for us to file our taxes as single individuals or as common-law spouses”. It usually comes as a big surprise when I let a couple know that this is actually not a decision that they get to make. It is actually a federal offense to file as a single individual if you are living as common-law spouses.
To put it simply, if you have been residing together for 12 months, congratulations, CRA considers you to be common-law spouses. If you have had a child together, you are considered common-law spouses and the 12 month wait does not apply.
If you meet the above definition of common-law, you must include your partners name, social insurance number and net income on page 1 of your own tax return.
You no longer, individually, qualify for the Goods and Services Tax Credit, the Ontario Trillium Credit or the particular provincial credits that apply to you in your province. Instead CRA will look at your combined family income to determine if, together, you meet the criteria for a low income family in order to qualify. In most cases you will no longer qualify. If either of you are receiving the Child Tax Benefit it will be recalculated in much the same manner.
CRA requires you to notify them of the change in your marital status by the end of the month after your status changes and it’s a good idea to do so. They can then take a look at the credits you are entitled to and adjust accordingly, rather than notifying them of the change when you file your taxes. If you continue to receive credits that CRA later determines you are not eligible for, you can face a hefty amount owing back to the government. Form RC65 is used to inform CRA of a change in marital status or call 1-800-387-1193.
Filing as common-law spouses can actually work in your favor in some situations. In situations where one partner is making less than $11,635.00, the unused balance of their basic personal exemption is transferred to their spouse as a spousal credit.
If you have additional questions or wonder how this may impact you, I would strongly encourage you to contact a professional tax preparer for more information.