Entering into a common-law marriage presents unique tax advantages and disadvantages that you should address. Combined income, assets and benefits can create filing complications that are avoidable with proper preparation. Proper record-keeping and consultation with a tax preparer will ensure that you avoid unnecessary audits.
Children in the Household
Having a common-law partner affects your child tax credit. The Canadian government takes into account the income of your partner when determining tax payments. Typically, you will not be able to claim the full child-dependent amount when you live with your common-law partner.
GST/HST and Provincial Tax Programs
Individuals living together are entitled to a full GST/HST tax credit with incomes up to about $32,000 each. The GST/HST tax credit applies to goods and services that a small business produces for revenue, and is deductible quarterly. Family net income is the determining factor for credit consideration. A common-law marriage eliminates this tax credit due to the combined incomes of the couple.
As a common-law couple, you are eligible for a Registered Retirement Savings Plan. This retirement plan enables you to transfer retirement savings to your spouse with no tax consequences if you die. Additionally, tax rates on the RRSP are adjusted according to the lowest income of the couple.
Capital Gains Taxes
Transferring assets to an unrelated individual will result in taxes that are applied at the fair market value of the asset. When you transfer assets to a common-law spouse, taxes are assessed only when the property is actually sold.
Separate Versus Joint Taxes
Though you and your spouse may file a joint tax return, you or your spouse may still need to file a separate return as well. Working-income tax benefits, taxes on social security, and taxes on employment benefits are reasons for filing a separate return. You may be entitled to an additional refund or tax credit that you can claim only if you file an additional, separate return. Check with your government tax office for specific instances.
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