As you sit down over the next few weeks to complete your 2003 tax return, you
may wish to revisit how you answer that seemingly innocuous question on Page 1
of the return, "Check the box that applies to your marital status on December
31, 2003." You have a number of choices, including: single, married, divorced or
common-law partner. It's this last option that seems to cause the most confusion
and misunderstanding.
Under Canadian tax law, "common-law partners" are defined as two people,
regardless of sex, who cohabit in a conjugal relationship and have done so for a
continuous period of at least one year. In other words, two adults who are
"living together" in a relationship of some permanence (even if just one year)
must report themselves as living common-law. Sounds straightforward, so why the
fuss?
Under the Income Tax Act, common-law couples are treated exactly the same as
spouses who are legally married. As a result, two people living together who are
not legally married may be tempted to continue filing as "single" taxpayers to
avoid losing certain benefits, such as the GST credit, certain provincial tax
credits and in some cases, the Child Tax Benefit, whose amounts are all based on
the combined net income of both partners.
Each year, there are several reported cases that make their way to Tax Court
dealing with this issue. In these cases, the court is asked to determine whether
two persons were, in fact, living in a "conjugal relationship" in a particular
year. In most of the cases, the couple is claiming that they are merely living
together as "roommates" and thus each individual has indicated a filing status
of "single" so they can each collect higher government benefits.
In such cases, the big question that always arises is how the Canada Revenue
Agency determines whether two people are indeed living in a "conjugal
relationship" since, unlike legally married spouses, their relationship is not
automatically registered in a public document (a marriage certificate).
The CRA has responded that it relies on a "self-assessment system" in which
Canadians "are expected to tell the truth and in which persons who make false
declarations can be penalized." Whether or not two persons are living in a
conjugal relationship is a question of fact, and this can include whether or not
the couple presents itself publicly as a conjugal couple, has claimed the status
of a couple for purposes of a pension or health plan, among other factors.
Judges who must decided such cases often rely on the Ontario District Court's
1980 decision in Molodowich v. Penttimen, later endorsed by the Supreme Court of
Canada. In the Molodowich decision, the judge provided some guidance as to what
constitutes cohabitation in a conjugal or marriage-like relationship. The judge
identified seven factors that may be indicative of a common-law relationship:
shared shelter, sexual and personal behaviour, whether one partner performs
services on behalf of the other, participation in social activities together,
societal perception, economic support and the couple's attitude toward any
children they have together.
So before filing your 2003 return, think twice before assuming that your
relationship "isn't serious enough" to warrant filing as common-law -- the CRA
may conclude otherwise.