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Claiming Single on Taxes When Common Law

Claiming Single on Taxes When Common Law

In 2021, the term “common law” is still misunderstood. According to the Canadian population, if a couple stays more than three years, they would fall under the category of “common laws.” However, common laws can complicate many legal activities. Getting a  consultation from a lawyer is recommended. Just to ensure that you don’t have any weakness in your legal issues. The first and foremost complication can be filing federal income taxes. It is crucial to choose a filing status but claiming something that you are not might risk you! Let’s get going to see the tax situation changes.

How Does Claiming Common Law Affect Taxes in Canada?

Couples frequently question, “Do I have to claim common law in Canada?” CRA defines a relationship which is more than 12 months to be a common-law relationship. So, the answer is yes!

Under legal conditions, if your couple is defined as a common-law relationship, it is necessary to show it on the tax return. Individually, both of you need to file your tax in CRA (Canada Revenue Agency). In the personal information file, both need to include the partner’s information (name, insurance number, and net income even if it is zero).

A net income of a couple partially benefits the whole country. In Canada, government benefits are calculated on population income. Eventually, CRA calculates one’s eligibility for tax credits and benefit amounts.

Is It Better to File Taxes as Common Law or Single in Canada?

Canadian tax rules differ from other countries. As mentioned, individuals need to submit their files. People cannot decide their way to file taxes, but they can return taxes single or jointly. However, CRA can easily find your relationship status by the information you provide to apply for credits or deductions.

Nevertheless, the way people return taxes has remarkable effects—for instance, benefits like GST or HST credit, child benefit, etc.

Filing Tax Returns: Single vs. Jointly

Jointly: once a couple files a joint tax return, there are many advantages that they would receive. The two incomes are combined, and as a result, the tax rate turns out to be less. Luckily some couples even receive tax credits. On the other hand, when two expenses are combined, sometimes the tax amount is lessened—some of the costs related to medical expenses, donations for charity, etc. Tax credits like GST/HST, home buyers, and earned income are also offered. If one of them is not working, the other can get a tax credit of dependents mentioning this issue. If all of these are combined, we can eventually figure out that the net amount of income increases.

Single: single tax returns have comparatively fewer benefits than jointly. Suppose taxes are returned separately; additionally, the net rate increases. Being separate disqualifies people from tax credits and deductions of the tax amount. However, such people would not have the opportunity of student interest loans as well. Lastly, when tax returns are separate, IRA contribution deduction also results in a lower amount.

Did you know in 2020, both the standard deductions were compared, and the result made a huge difference? The standard deductions of single taxpayers were $12400, and jointly taxpayers were $24800.

Benefits of Common-Law Marriage: Canada

Some people believe in having legal papers to show their true feelings for their partners. However, one must undergo a certain age to get married. The traditional way of marriage is arranging ceremonies, but some people like to be private. They tend to avoid organizing such events and getting a legal paper from the court. In legal words, getting married in court is the “declaration of informal marriage,” also known as “common law marriage.” Common law relationships and marriage is just a difference of a legal document.

Common-law marriage has many benefits, and some of them are:

  • Making relationships legal
  • Equal rights on a property
  • Spousal maintenance if the couple decides to divorce
  • Inheritance rights.

How Long Couple Needs to be Separated to Claim?

Common-law relationships are mostly the ones that are long-lasting and already faced obstacles. Keeping these in mind, legally, CRA added partners being apart for 90 days or more can be considered separated. The year of separation would turn to be different because while returning tax claiming partner’s income would be counted based on past.

Claiming Single While Being Common-Law Relationship

In Canada, there is barely any difference between married and common-law couples. So, being in a typical relationship and not filing about the partner is a fraudulent act. As a result, people can be charged fraudulent tax returns, reassessed for not paid taxes, and denied various benefits. Violating rules and regulations is a crime, so this means many other problems are arising. Based on section 7206, as potential penalties, the rate would be $5000 and three years’ imprisonment. Just for saving money, imagine a criminal record added to your life!

Reasons Affecting Taxes

  1. Separation: some relationships do not last forever. When they break up, the tax implications change as well. However, as mentioned, CRA takes 90days to verify the information. Later, while returning tax in the year of separation, they would be accounted for an ex-partner’s income till the separation date.
  2. Widowed: when a couple is returning tax jointly, and one of them causes death, the other person can continue the same procedure for tax payment in that year. However, remarrying in the same year would result in paying single, but you can use the joint tax return process with your new partner.
  3. Liability issues: sometimes, a couple suspects each other about violating tax rules like not mentioning exact income rates. To be on the safe side, they decide to pay separately to avoid future tax liability. Sometimes, one of the partners refuses to pay taxes, so a potential citizen chooses to pay separately.

Let’s Wrap Up

People have to give a lot of thought while choosing a way to file a tax return. The best decision is to take help from a lawyer to help you decide a way through which they will get credits as much as possible and pay the lowest amount of tax. In general, couples might choose to tax returns separately when their incomes vary a lot. Other than these, taking help from lawyers is an excellent idea as you never know which credits you are missing!