Q: I have been living with my boyfriend for just over a year. According to family law we are not considered “common law” until we have lived together for three years. However, the CRA considers you to be common law after only 12 months. We have a cohabitation agreement which states that we are not financially responsible for each other or the others’ child. By changing my status to common law with the CRA, they will calculate a net family income based on both our incomes which will result in a loss of disability and universal child benefits. Is there a way to avoid the net family income as we are financially independent of each other?
A: Unfortunately, no. You are required by law to report family net income for taxation purposes. In fact, if either of you have a child, you’ll be considered as a common-law couple as soon as you cohabit; that is, unless you can show that neither of you acted as a parent to the others’ child. However, excluding financial responsibility is just not enough.
In your case, because you’re in a common-law relationship for tax purposes, you must inform CRA of your new relationship when you file your returns. From that point forward, family net income is used to determine the level of social benefits such as the Goods and Services Tax Credit and the Canada Child Benefit (CCB). In the case of the CCB, your maximum available benefits, including disability benefits, will be reduced when family net income exceeds $30,000. Provincial credits, which are not calculated monthly may be affected when you file your returns for the year.
The UCCB, which was eliminated last July, was not means tested so it would not have been affected by your change in marital status. Don’t forget to report the amounts received for the first part of the year (January to June 2016) on your 2016 tax return.
It’s not all bad news, from a tax point of view for common-law spouses. For example, medical expenses can be claimed by either spouse so putting all claims on the lower-income spouse’s return could result in a larger benefit. Also, unused tuition fees and disability credits may be transferred to a supporting common-law spouse. You may also wish to consider whether an RRSP or spousal RRSP makes sense in terms of saving for your retirement. RRSP deductions will reduce not only taxes payable but net income, which in turn, may increase your Canada Child Benefits.
Evelyn Jacks is president of Knowledge Bureau, which offers e-learning at knowledgebureau.com. Evelyn tweets @evelynjacks and blogs at evelynjacks.com