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Fredericton Daily Gleaner ~ Capital Appreciation ~ Married with children ~ March 26, 2007 - 06 May 2007 by TaxHelp

Married with children.
Roger Haineault – “Capital Appreciation” – March 26, 2007.

While Neil Young might have felt that you should “love the one you’re with”, even he would have been confused on what constitutes a union in the eyes of the Canada Revenue Agency.

I was reminded of this once again this week while advising a young couple that were moving in together. While everyone knows they’re married when they say their “I do’s” in front of a priest, minister or judge (or some other variant), for those who live in what we euphemistically called sin, it’s harder to know if they are indeed common-law for tax purposes.

The whole ‘shacked-up’ definition has changed a number of times over the past handful of years and it deserves an airing today, so that you can understand your benefits and obligations taxwise.

But first some history. Back in 1993 the marital status definition was expanded to encompass the common-law relationship. Through time the qualification for consideration has changed. In 2001 the federal government revised the definition of spouse to cover only those married while the term common-law partner was introduced to better reflect those relationships that are both opposite and same sex in nature.

At any rate, people who are married are entitled to claim their spouse for a non-refundable credit depending on their level of income. The federal budget last week committed to increase this amount to the same figure as the basic personal exemption. One has to factor in the full year of income, so gone are the days when people got married on New Year’s Eve to gain thousands of dollars in tax advantage. Now, the total annual income is subtracted from the claim no matter when the date of the nuptials occurs.

What goes around, comes around. During the nineties parents lost the dependant claim for their children. Last summer the feds began paying $100 a month for every child in Canada under the age of six, which is taxable to the lowest income parent. The new budget has restored a tax credit for each child under the age of 18 worth $2,000, which can be split amongst parents.

But what about the single parent? Over the years, they have had the opportunity to claim something called the equivalent – to – married (and then – spouse), and now known as the eligible dependant amount. This was worth the same as the married (and then spouse) amount. To qualify for this credit, the taxpayer completes the Schedule 5 and basically has to have been single, separated, widowed or divorced at any time during the year and be supporting a child who lives in the same household. This means that someone who is a single parent and gets together with a partner during the year can claim this credit.

So what was the common-law definition? If there were no children involved, the couple needed to co-habitate in a conjugal relationship for a period of 12 months. If they separated for a period of less than 90 days, they were considered to never have separated. On the other hand if they were apart longer than 90 days, they were separated and if they reconciled they were again considered to be common-law. Today however, if the period of separation is more than 90 days and you reconcile, the clock starts afresh, and you are not considered to be common-law until you have again lived together for 12 continuous months.

What about if there is a child involved? The common-law period is different. If a couple lives together and has a child together, the common-law period starts at the birth. However, if a single parent and someone get together, and that someone is not the biological parent of the child, the common-law relationship did begin when he or she becomes parent-in-fact. A good way to describe this is as follows: if the new partner has child responsibility – to go to the school or doctor for instance – then the couple are considered common-law.

Since it’s highly unlikely that they will get together on January 1, at some time during the year the parent will be single and supporting the child. This will allow him or her to claim the eligible dependant.

Finally, there is another new wrinkle that crept into this equation in the past year or two. Many single parents have found it unfair that, while they work and support their family, they arbitrarily lose the credit when they bring someone into the home and into a serious relationship. Now there is relief. Now common-law relationships when there are children involved only begins at the 12 month co-habitation point, if the single parent and child is not wholly dependant upon the new partner. In reality, this will allow many formerly single parents to claim the eligible dependent in the following tax year as well.

Roger Haineault is with Help 4 Taxes. He can be reached by email at roger@help4taxes.ca or by calling 443-HELP (4357). His column appears Mondays.