Married vs. common law--what's the difference anyway?

• Author: Taylor, Brad

Introduction

Most individuals who have recently wed realize this will change their income tax status, but common law couples often fail to realize they may also be considered married by the Tax Man. Many are surprised to learn that a different set of rules applies the next time they file their income tax returns. This article provides a basic overview of how married and common law are defined for purposes of the Income Tax Act of Canada ("ITA") and some tax advantages and disadvantages associated with married/common law status.

Definitions

Married

The ITA does not specifically define married, so the ordinary definition--two people legally united in marriage--applies.

Common Law

The ITA defines a common law partner as a person (opposite or same sex) with whom the taxpayer lives in a conjugal relationship, and at least one of the following applies:

* the parties have cohabitated with one another throughout the previous 12 months, or

* the person is the parent of the taxpayer's child.

In determining whether two individuals are living in a conjugal relationship, the courts evaluate seven main factors:

* shelter

* sexual and personal behaviour

* services

* social

* societal

* support (economic)

* children

These factors were cited in the case of Hendricken v. The Queen, 2008 TCC 48 Paragraph 12 of this case expands on each of these factors.

For couples without children, this means they become common-law partners one year after they move in together. Under these definitions, it is possible for a legally married person to also have a common law spouse (or multiple spouses).

Each province legislates "common law status" for family law purposes, typically not matching the income tax definition. For the remainder of this article, "married" is used to refer to both legally married and common law couples, unless otherwise noted. Ultimately, the Income Tax Act affords married and common law couples the same advantages and disadvantages.

Tax Advantages Enjoyed by Married Couples

Spousal Tax Credit

If one spouse had net income less than their basic personal amount in the taxation year ($11,327 in 2015 indexed for inflation), the excess may be transferred to their spouse. Where one spouse had no income in 2015, the other would claim a married credit based on $11,327, for a federal tax savings of $1,699. Provincial credits are available as well, in varying amounts.

Transfer/Optimization of Personal Tax Credits

Married couples can optimize the use of their...