CRA Common Law | Should you file taxes with your common law or married spouse?

CRA Common Law is a question that many tax payers have when filing with their common law or spouse.  There are benefits to filing together and non benefits as well.  This all depends on your income levels and we will touch on each of these in this article.

First we need to separate being married compared to Common Law.

CRA Common Law

Common Law is a legal binding relationship if you meet the requirements of the law.  Usually for most provinces if you live together for more than two years then you are considered common law legally.  This does not mean that you cannot file a CRA common law tax return if you are under the term.  Many couples have taken the next step with engagement and or babies and should be filing together regardless of the time.

Others who have been together for more than 2 years still choose to file single even though technically they should file as common law.  The CRA always looks at the amount of time one has stayed in a residence and who else lives in that residence.  So be careful as they can send you letters requesting information on your common law relationship.

So in conclusion if you are over 2 years living together it is wise to file taxes together.  If you are under you do not have to take the jump yet unless you have a baby together and or thinking about a long term relationship.  (That part is up to you)

Tax wise how does a joint return affect my taxes?

Well it is a very simple equation actually.  If both partners make over $10,000 then the results will be the same if you filed as single.  There are not extra benefits if this is the case when filing CRA common law.  Unless you are a pensioner and you are looking to split your pensions to reduce tax, then there can be some adjustments in the return.  

So if both of you make over $10,000 then you are ok.  Nothing changes.  However what if one partner makes under $10,000 and the other is over $10,000.  Well lets take a look at this scenario below to see what the affects could be.

Bob Makes $2,000 per year and Sandra makes $80,000 per year.  Because Bob makes under $10,000, Sandra will be getting up to an additional $2000 extra on her tax return.  What is the reason?  Well Bob is considered now a dependent.  As of today and the date of this article, dependent claims are still a deduction.  Bob does not make enough to support himself so Sandra is the one that receives this additional refund to help with support. 

"How much you receive is dependent on how much your dependent makes."
 

So if Bob made $0, then sandra would receive the full $2,000 as an extra deduction or refund.  If Bob makes $5,000 then sandra receives $1,000.  The in between you will see on the tax return when you file.

But please note, sandra would have to had paid at least $2000 in tax to get $2000.  You can only get back what you paid in tax during the year.  If you paid $0, then you could have a million dollars in this and that and your refund will not change.

So in this case between Bob and Sandra it is wise to file as common law on their tax return as it would benefit the one making more money!

Married

If you are married then you do not have a choice and must file a return together.  Remember when filing a return together you still have your own separate returns and you are only joint by income.  You still have your own deductions and you have your donations etc. 

Unless you are separated then you would click separated on the return and you would then be filing single. See the CRA website for more information.

So being Married is the same as being common law.  You have the exact same rules for tax.  So if you can see Bob and Sandra’s example above, you can see that if you both make over $10,000 then your return is not affected.  However if one makes under $10,000 and one is over $10,000, then the one that makes more money is the one that is getting an extra dependent deduction because of you. 

Please note, that pensioner situations are different and you can click the link above for more info. 

So in the end filing together is only beneficial if one is below 10k and the other is above 10k.  Otherwise the return will be the same just like filing on your own.

For more information you may contact us and we can provide free consulting services on these matters.   File online with our tax accountants for only $25.  Business tax returns for $75, and Corporate Tax Returns for $200.