Common law indicates the system where you are considered married even without fulfilling legal procedures or religious rituals of marriage. For a couple under the common law, you have to spend a particular period of time in cohabitation with your partner. It could take around 1 to 7 years to become a legal couple under the common law depending on the state rules where you both live.
Being a common-law partner means sharing the same number of responsibilities toward each other like a married couple lawfully. Common-law partners can pay their taxes together as a married couple. In fact, filing single when common law is also a punishable crime.
So, you may feel confused about what happens when you file taxes as common law? It has both advantages and disadvantages. Let’s have a look at them.
Advantages of Filing Taxes as Common Law
There are some criteria that a couple has to fulfil to become under the common law.
After meeting all the requirements, they are legally considered couples and have the same responsibilities as married couples. Couples get so many advantages of filing taxes as common law rather than filing taxes as single.
When you file jointly, the total amount of tax returns become less than filing single. Sate counts the credits for taxes differently for single people and the married couples.
When you are married, filing jointly will impose the tax on the total household income, not your personal income. So, this is a legal escape from paying a big amount for tax purpose.
- Couples get so many family packages to save their money to buy things if their income is below average. So, this is a huge plus point if you both do not have proper income.
- Common law permits you to contribute to your partners RRSP even though you are not legally married.
- Having a child under the common law may seem like a burden, but you will find it a blessing if you are in a good relationship. Having children under 18 will allow you to avail the family tax cut.
- You both can use your tax credit together to buy a new home.
- It permits you to transfer your tax credits to your partners account if you wish to.
- If one partner is unemployed, another can earn tax credit by mentioning the partner as a dependent.
- If your income is not up to the mark, but you both have a child, you can get the tax benefits from it.
- It permits filing the couple’s receipts together, whether about medical expenditures or charitable things.
Disadvantages of Filing Taxes as Common Law
Filing taxes as common law has many advantages, but that doesn’t mean it doesn’t bring any disadvantages. Every coin has two sides, and this issue has some negative impacts also. Some of them are,
Being under common law means you are not a single person anymore. It states your relationship status as married. Being married will make you ineligible for some specific tax credits, such as GST credit. If you are a Canadian, you will lose the child benefit.
Common law stops the income supplement which was guaranteed before marriage.
Common law will change your marital status, which will negatively impact the credits of provincial tax.
What Happens to Taxes If the Common Law Partners Get Divorced?
Breakup or separation will make the tax issues more complex. Under this law, if you both want to prove yourself as no longer in the relationship, you must stay away from each other for around 90 days to ensure the separation.
The procedure doesn’t end here. You both have to file single on that year as soon as possible, and you may have to pay the taxes until the whole procedure ends.
Filing single instead of being applicable under the common law is a crime, and if the state finds you doing this, you will face a considerable punishment. It will take you under the fraudulent case.
Final verdict
Paying taxes properly is the greatest virtue of a sincere citizen. It is also a common responsibility of an individual to have proper knowledge about the taxpaying rules of his state. Pay the taxes properly and encourage others to do the same.
