In Canada, is it more tax advantageous to be two singles living together, living common law or married?

Question

My "close" friend and I are earning similar amount of salary, and we plan to buy a house and maybe a cottage shortly.

I know that, if both claimed as singles on our tax returns, we can each have a tax free principal residence. What are other tax advantages or disadvantages as two singles, or alternatively as a common law couple or married?

Answer 1

Why don't you ask an accountant?  That seems a bit easier to me.

Answer 2

There are few advantages for being single, GST rebates is one and in the case of Quebec alot of the credits are based on "Family" income rather than individual income.

Now if you are living together for more than 1 year, the Government will usually deem you as Common Law, you can try to fight it, but  it's not easy.

For the idea of purchaseing 2 residences, it kinda works if you can prove that each of you used a different residence as there principal residence (ie All mail should not be going to only one address.  There should be multible Utilities and Service bills).  Now I'm not saying to lie or anything, just saying if you can prove that you each have a different residence. Then the gains would be tax free on a sale.

Answer 3

In Canada, the rules are clear.

To file as common law, you must have been living together for 12 months.  If you have a child together, you are common law once the child is born.

You cannot file as single if you fall into the categories above.  If you do, it is fraud.  To file as single would allow you both to claim the same credits, that only one of you is allowed to claim.

You must file your tax return with your true marital status, otherwise you will face penalties, fines, interest, and possible criminal charges.

Answer 4

Section 122.6 of the Income Tax Act will define you as common-law if you have lived together for a period of at least twelve months in a conjugal relationship, or are living together and are the parents of the same child.

If you meet one of the conditions above, then reporting yourselves as single is a violation of the Income Tax Act. You do not have the option of 'considering yourself single'.

Having got that out of the way, a common-law couple and a married couple are taxed exactly the same way, including the rules regarding principle residences.

My observations of the income tax system seem to suggest that a single person has more benefit in Canada, especially if there are children involved. The Child Tax and GST Credits are based on the combined family net income. If the child is living with only one parent, guess what... the benefits are based solely on that persons income.

As for other advantages or disadvantages... you need to be more specific in your question. It's hard to think of these things off the top of my head.

Answer 5

If you are living together, and have been for some period (6 months I believe), you are common law.  This isn't your choice, it is the required filing.

Marital status really doesn't matter.  The only issue is the calculation of certain tax credits (just GST if there are no kids involved).  If you are making enough to consider two homes, odds are you are over the GST limits anyway, single or married.

In terms of the dual residence issue: if you live apart, you can indeed each claim a home as principal residence.  But the rules are that you have to live in the home, so if you live together, that isn't going to work.  But perhaps more importantly: if you each own part of both homes, only half of each will be exempt from capital gains.  The half owned by the other is still taxable.  So in the end, you end up the same as if you did it officially, with one principal residence jointly owned.

So as you see, your marital status is already defined, and any  change really doesn't make any difference anyway, so why not claim correctly and avoid the need for audits?

Answer 6

Depends on the province you are in too.   Work it out in a fake tax report, each way.  You may find out that if one of you were dead and a French speaking native minority it would be cheaper.  Who knows.  The tax laws can be weird.