Sept. 1, 2022 "In a common-law relationship? Here's what it could mean for your money": Today I found this article by Adena Ali on BNN Bloomberg:
In the five years Chloe Bow and her ex-partner were in a common-law relationship, they only had one conversation about what a break up would mean for them financially.
When they parted ways, the biggest sticking point was the condo they bought together in downtown Toronto, where she paid 30 per cent of the down payment.
"We split the mortgage payments based on our income and what I was able to afford because he had a way higher salary than I did," the 29-year-old said.
Ultimately, lawyers had to get involved.
At a basic level, common-law status means you are living with your partner but are not married.
It doesn't require a legal document, but certain protections come into effect based on factors such as
the length of co-habitation,
the building of intimacy
and emotional ties to one another,
joint ownership of possessions,
naming one another as beneficiaries on insurance policies,
and financially supporting one another
-- a relationship similar to that of a married couple.
For federal tax purposes, common-law status refers to couples who have been living together for 12 consecutive months or who share a child by birth or adoption.
But it is important to remember that each province manages legislation for common-law relationships differently.
The number of common-law couples in Canada has been on the rise for years. There were 3.9 million people age 15 and older living with their common-law partner in 2021, according to the latest census data regarding marital status, up from 3.5 million in 2016. Quebec has the highest number of people with common-law status, at 1.7 million.
And with the number rising, experts say more thorough discussions and planning needs to happen,
with people asking themselves how common-law status might affect their future assets,
or what it means financially if the couple part ways.
Financial planner Jackie Porter said the couple should decide ahead of time what each partner would be entitled to from a financial perspective based on assets brought into the relationship -- and document it.
She said this may help to alleviate problems later if the relationship doesn't work out or there's a death.
People need to have conversations about their individual financial circumstances as well, she added.
"Working out details may not be a pleasant conversation for most people but an important discussion to ensure both parties are protected ... because a common-law breakup has the potential to hurt someone financially worse than a divorce could," she said.
If there's a breakup, you may not be legally entitled to assets like property unless you can prove you contributed to it, for example.
Breaking up can be a costly endeavour if expectations are not set around what potential financial support would look like as well, Porter noted.
After a year-long legal battle over their shared condo, Bow said she ended up settling despite her lawyer advising her not to.
"It was an interesting scenario because both of our lawyers were saying different things," she said.
"He was only offering to give me back the initial investment into the condo not considering that we had lived there and it had increased in value.
They finally increased their offer marginally, and I said, 'You know what, I just want this over with and to move on so I'm going to accept it."'
Sydney Bunting, a lawyer at JJ Integrative Family Law LLP, said property rights in the context of common-law relationships is one of the most common topics at her firm.
And there are pretty big differences across provinces.
In Ontario for example, common-law couples are not legally required to share in the value of the property acquired during the relationship. In British Columbia, on the other hand, the default is that property acquired during the relationship is shared equally.
Bunting said one typical scenario she sees that tends to cause tension involves one party owning a property, their romantic partner moving in and there being a very informal arrangement where he or she is paying a couple thousand dollars a month toward the property.
"But if you do that over eight years, let's say, a lot of times people then separate and it's like, 'well, I've been paying down that person's mortgage for eight years and have nothing to show for it, because I kind of understood that this is our house, even though my name's not on the title,"' she said.
In British Columbia, the non-titled partner would have a claim to the growth in the property value over the course of the relationship, Bunting explained, whereas in Ontario, the non-titled partner would have to establish a "trust claim, "which is an attempt to show that the non-titled partner's contributions have enriched the other while depriving the non-titled partner.
"(The latter) is much harder to do, and the onus is on the claimant," Bunting added.
"So you have to show a court that 'We understood that we were building a financial future together."'
Financially speaking, when comparing marriage to common-law, Bunting said the benefits and risks depend on your role in the relationship.
"If you're the person that's going to stay home to raise kids, not pursuing your own career because you understand that there's a joint family effort happening here, there are protections and rights that marriage offers that common-law doesn't," she said.
Looking back, Bow said she wishes she had a bigger discussion about assets.
She also wishes unpaid labour -- something she said she really took on while in the relationship -- was valued more by society.
"We were able to buy the condo that we did because of him but my contributions to the relationship also enabled him to go to work and get that big job, not that I was solely responsible for it, but I maintained the house, I did the cooking and the cleaning and organized our lives," she said.
In the end, however, Bow has been able to grow from the experience.
"When I got bought out, that money was really helpful for me. It allowed me to actually leave my job and pursue self-employment and gave me a bit of a nest egg in terms of how I can enhance my life in other ways."
In a common-law relationship? Here's what it could mean for your money - BNN Bloomberg
Apr. 20, 2023 "How becoming common-law or getting hitched changes tax-filing season": Today I found this article by Rosa Saba on BNN Bloomberg:
As more Canadians enter common-law relationships, experts are encouraging young couples to educate themselves on the tax implications.
“There are credits that you may be used to getting, if you're a single person,” said Stefanie Ricchio, a Toronto-based CPA.
“There is a little element of surprise.”
In 2021, more than one in five Canadian couples were common-law, meaning they lived together in an official, legal union without being legally married.
That’s a 447 per cent growth in common-law couples since 40 years earlier, according to Statistics Canada, though married couples still make up the bulk of Canadian couples.
It’s younger Canadians driving this trend, with almost eight in 10 coupled-up Canadians aged 20 to 24 living with a common-law partner.
“It’s so much more common now,” Ricchio said, adding that she thinks young Canadians are moving in quicker than they might have in previous years in part because of the rising cost of living.
A couple is considered common-law after living together for 12 months, and by law must tell the CRA about the status change and file their individual taxes as common-law, said Gabriel Lalonde, a certified financial planner and president of MDL Financial Group.
If you have a child together and live together, you become common-law, he added.
For tax purposes, common-law and married are the same, said Jami Monte, a CPA and TurboTax spokesperson.
When you’re single, you’re considered a household for tax purposes.
But when you partner up, tax-wise, you combine to become one household.
That means any benefit based on your household income, such as the GST/HST credit or the Canada child benefit, may no longer be coming your way, or you’ll be getting a smaller amount, said Lalonde.
Though you’ll lose some tax benefits when two incomes become one, you’ll also gain some perks, though many apply to the later stages of life, said Ricchio.
For example, you can do pension income splitting, she said.
As well, if one spouse earns significantly less, the other may be able to claim them as a dependent.
Couples can also transfer certain credits between spouses, said Ricchio.
Medical expenses can be allocated to the higher-income partner to help alleviate tax burdens, said Lalonde.
In addition, there are other personal finance benefits not directly related to your income tax filing, Ricchio said, such as the general perk of being able to combine your expenses, as well as more borrowing ability for things like mortgages.
Two people can use the First Time Home Buyers Plan on a home together if eligible, said Lalonde.
There’s also the Lifelong Learning Plan, he said, which allows people to withdraw from their RRSPs to pay for training or education, either for themself or their spouse.
Twelve months goes by quickly, said Ricchio, and it’s not uncommon for someone to realize they’ve been filing as a singleton for a year or more when they were actually common-law.
“That is a fraudulent return if you're misrepresenting your status,” said Monte.
If that happens, it’s not difficult to change your status with the CRA, she said, and you can do it online, over the phone or by mailing in a form.
But what might be harder is what comes next.
While you don’t need to re-file your taxes, the CRA will reassess both taxpayers’ filings for the years they were common-law, said Monte, and you should expect some kind of clawback.
“You're likely to be receiving a bill from the CRA asking you to pay back for overpayments that were made to you,” said Ricchio, adding this could include penalties or interest.
The CRA does have options for repayment plans, according to its website, but it can also take from your tax benefits or credits to help pay down any debt.
If the debt is a significant burden on your finances, Ricchio noted the CRA also allows taxpayers to submit requests for relief, though it can take time to receive a decision so she recommends paying the debt if possible even if you’re applying for relief.
It can be helpful to work with an accountant or financial planner every few years to make sure you’re not missing any possible benefits or transfers, said Lalonde, especially when you’re making a big life change such as changing your marital status.
“When there's a big milestone, like getting married, you know, why not ... make sure that you're getting all these credits and donations that you're entitled to?”
Married or common-law partners still have to file individual tax returns, not a single return, said Lalonde — a common misconception he’s noticed among taxpayers.
Another misconception is around income-splitting, said Monte.
While you can do income-splitting with pension income,
you can’t do it with employment income, she said.
“There are always, of course, ways that you can be strategic with your tax filing,” she said.
This report by The Canadian Press was first published April 20, 2023.
No comments:
Post a Comment