3 min

Tax man says: You’re a couple

Couples that don't declare their relationship can be reassessed

If you’ve been shacked up for more than a year, you have no choice anymore: You and the one you share your bed with have to do your taxes together.

That puts queers in the same taxation situation as straight common-law couples who have lived together in a conjugal relationship for more than 12 months.

Since the feds passed the Modernization Of Benefits And Obligations Act in 2000, homos have had the choice to do their taxes separately or together (same-sex couples are even permitted to do their taxes together retroactively back to 1998). But 2001 is the first year it’s mandatory.

Couples that don’t declare their relationship can be reassessed and ordered to pay back taxes and benefits, along with interest.

The question on many couples’ minds is simple: What does this mean for the bottom line?

The answer, though, isn’t straightforward. How your wallet is affected is dependent on two things: The relative incomes of each partner – and who you ask.

Richard Surgeson, a chartered accountant in Ottawa, says the new rules won’t hurt high-income households that much.

“It’s going to hurt low-income couples more than it will hurt anyone else,” he says.

Toronto lawyer Bruce Walker disagrees, although he says that each situation should be assessed separately.

“Two people with high incomes would be paying more taxes,” says Walker. “Two people with a modest income won’t notice much of a difference.”

Tom Ricketts, a chartered accountant in Toronto, says it’s important to remember that tax rates themselves don’t change.

“It’s whether you get to keep the benefits that are subject to income tests,” says Ricketts.

So, for example, if one person makes $80,000 and the other makes $25,000 and own their home, doing taxes jointly would mean the lower-income partner could lose GST benefits and Ontario Tax Credit for paying rent.

Ricketts says the most noticeable difference in the new regime will come down the road with things like Canada Pension Plan survivor benefits and Registered Retirement Saving Plan benefits.

For CPP, surviving spouses are now eligible, though there is a class action suit in the works, saying the feds should cough up retroactive pensions for the partners of those who have died since 1985, when the Charter Of Rights And Freedoms came into effect. For RRSPs, the new rule says that if you survive your same-sex spouse, you are entitled to the funds in their RRSPs tax-free. Before, homos had to pay the tax while straight spouses did not.

Ricketts says that a number of other things are affected by the law, and not necessarily in a good way.

“The pattern has always been that couples who are not married were better off,” says Ricketts. For example, if an unmarried couple owned both a house and a cottage, each could get a principal residence exemption. Now that they’re considered common-law, they can’t do that.

If there are children involved, the amount of money someone receives from the Canada Child Tax Benefit can be affected.

A couple can choose to file separate tax returns, but it may come back to haunt them because Big Brother may call them in for an audit.

If Canada Customs And Revenue Agency notices that two people have been sharing an address for a long time and it appears that they’re a couple, they’ll be asked to prove that they’re not. If the duo can’t prove they’re not together, they may be subject to penalties and interest.

“Everything’s on an honour system,” says Peter Delis, the manager of Communications at the CCRA’s north Toronto office. “We do random checks throughout the year through various projects. One example is the Ontario Property Tax Credit, moving expenses and other small projects. We randomly select a handful of taxpayers and just check their tax returns.”

Delis says Revenue Canada can spot red flags.

“If there are two individuals at the same address and they’ve indicated that one year and the next they file separately, that would be questioned,” he says.

Walker says the advantages of filing as a couple outweigh a possible short-term financial loss. But he sees it as more than a tax issue.

“The benefit of having the government define our relationships is that we’re able to participate fully in society,” says Walker. “We’re able to work and change from within.

“It’s going to be terribly difficult for people who are still in the closet,” says Walker. He concedes that it’s an invasion of privacy, but one that’s breached regularly in other ways.

“If you want a drivers licence you’ve got to disclose your age and your address,” says Walker. “I don’t see any way around it.”