02/26/2015 12:02 EST | Updated 04/28/2015 05:59 EDT

Know Your Status As a Couple Before Filing Taxes

Claiming marital status when filing taxes, especially common-law, can be clouded by a number of issues. Some people reason that if you keep your finances separate then you don't claim as common-law. Or they don't think they have lived together long enough. The CRA rules are very clear.


Half of Canadians are confused about marital status and household versus individual filing

For richer or poorer, in sickness or in health. Most couples are familiar with that aspect of marriage. But taxes are another story. When we asked Canadians in a Leger poll whether or not they can choose to claim as married on their tax return the year of their wedding, nearly a quarter said this was true and 51 per cent said they didn't know.

Based on my experience, this is not surprising. When it comes to the excitement of getting engaged, planning a wedding, getting married and going away on a honeymoon, taxes are the last thing on your mind. But that doesn't make it any less important. The Canada Revenue Agency has its own rules for determining marital status, and they may not be the same as provincial rules or your healthcare provider guidelines. But when it comes to filing your taxes, only the CRA's guidelines matter.

Claiming marital status, especially common-law, can be clouded by a number of issues. Some people reason that if you keep your finances separate then you don't claim as common-law. Or they don't think they have lived together long enough. The CRA rules are very clear.

You are considered common-law as soon as you have lived together continuously for 12 months. If you have a child together, then you are considered common-law as soon as you move in together. In most cases, this would only apply if you were the natural or adoptive parent of your partner's child. However, you can also be considered a "parent" for tax purposes if you have custody and control over the child and he or she is wholly dependent on you for support.

When we asked Canadians in a Leger survey, nearly two-thirds of Canadians understood that living together for 12 months meant you were common-law but almost 40 per cent believed you could choose whether or not to claim common-law status. This is not the case. If you meet the guidelines, you have to inform the CRA when you are common-law via a RC65 Marital Status Change form to make sure they have the latest information.

Understanding your marital status for tax purposes is important. My clients often ask me whether they can save money by filing a joint return and the short answer is no. In the U.S., you do have an option to file joint returns, but Canadian taxes are filed on an individual basis no matter what your marital status. I like to think of it like meeting at an intersection. You start out separately, bring your returns together to maximize credits but then you each sign your own return.

My husband always asks why his balance due can't come out of my refund. Unfortunately, that is not how it works. Whether you are common-law or married, you can pool receipts such as medical expenses, charitable donations and public transit passes to maximize your credits and pay less tax. But ultimately, you file separately. Understanding the rules is the best way to make sure you don't overpay the government.

One of the common misconceptions is that filing as common-law or married means you pay tax on your combined income, but this is not the case. However, depending on your situation, you may be able to claim the Family Tax Cut, contribute to a spousal RRSP or combine receipts for greater tax savings.

It is important to know, you can actually face a bill for filing your marital status incorrectly. The CRA calculates government benefits based on your household income. This means that if you're married or common-law but file your return as single, your individual income may qualify you for things like the GST/HST benefit, Canada Child Tax Benefit (CCTB) and other provincial benefits. But your combined household income may make you ineligible. If you receive benefits you are not entitled to, you will likely be required to repay all the money you received from the government and it can add up more quickly than you think - especially the CCTB.

Fortunately Canadians are statistically savvy to this risk, with 67 per cent confirming their understanding of it. But one third still run the risk of making this costly mistake.

Tax time is upon us and you might stand to save some money on your return. But getting prepared and understanding how your taxes work are essential in making sure that you don't miss a thing. If you're expecting a baby, planning a wedding, dealing with a divorce, or coming up on the anniversary of living with your significant other, make sure you're aware of the tax implications that come with it.


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