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Discussion Starter #1
my partner and i became common-law as of july 2009, so this is the first time we will be filing our taxes as common-law.

some friends have told me that when they started filing as common-law they lost out on various tax credits and received smaller returns than they did the previous year, despite making the same amount of money, having the same amount taken off, etc.

i do not plan to file as single, because i don't think it's worth the risk to have the CRA on my tail, but i'm just curious as to what people's experiences have been, tax wise, when going from single to common-law.

i know that our entitlement to the GST rebate will be affected, but is there much else?

if it's of any use: i make $43,000 (gross) per year and my partner is in school and only makes about $18,000 (gross) per year.

thanks.
 

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If I were you, I would file as single. That is not to say that you are filing appropriately but the bottom line is, unless you wanted to make a spousal RRSP contribution, then you will end up either paying more tax and/or losing out in other benefits, by filing as married.

CRA defines common law as entering into a conjugal relationship. Since I doubt CRA plans to enter the bedrooms of Canadians to confirm this situation and until they equalize the tax system more fairly, if I didn't have a ring on my finger, my wife would not be listed on my tax return.
 

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There is no "file as single" or "file as common-law" in Canada. Every tax return is completed for an individual. However, you indicate whether you are single/divorced/married/widowed/common-law on your tax return as well.

Some tax credits are calculated on the basis of household, not individual income. These include the GST credit (as you've noted), as well as child and family tax benefits (only the ones that are income-sensitive, such as the Canada Child Tax Benefit and not the UCCB).

In addition, some other programs will use net family (=household) income to calculate various entitlements (for example, subsidized daycare in my city, Toronto).

Unless you have children, the single/common-law/married distinction will not have a big impact on your taxes. And if you have children, and still live together, but do not indicate that you have a spouse on your tax forms, and one parent files including the children as dependents but does not include their spouse's net income on their return, CRA will match up the returns (eventually) by address.
 

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Discussion Starter #4
thanks for the clarification, MoneyGal.

what i really meant was filing, indicating common-law vs. filing, indicating single.

in regards to optsy eagle's suggestion: that's not really a route we'd like to go. regardless of whether CRA would clue in now, we plan on having children together and indicating single now would just cause problems with our tax returns down the road.
 

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Right. There's a spot on the tax return where you indicate if your marital status changed in the year and if yes, when. If you do this truthfully you never have to remember what you said from year to year. :)
 

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Does anyone have any examples of the "marriage/common law" tax in Canada? (ie what deductions would you lose) I know it exists in the US but I didn't think it happened here.
 

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This could get pretty political pretty quickly. The debate usually comes out in discussions of two hypothetical families with the same gross income - but in one family, the income is earned by two adults, and in the other family, the income is earned by one adult.

This issue seems to have lost steam over the years, but I personally am very interested in tax and family formation / tax and families.

Here's a brief article (and to prove I quote agnostically from both the right and the left, it's from the Fraser Institute):

http://www.fraserinstitute.org/Commerce.Web/product_files/Does Canada have a Marriage Tax Penalty~-Mar04ffmarriage.pdf

I have an enormous (really) amount of background info on this issue...it's one of my personal (not professional) areas of interest.
 

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That was a pretty incoherent post from me. What I meant to say was, there are those who believe that Canada has a "marriage penalty." The Fraser Institute has (cutely) named it the "Leave it to Beaver" penalty.

The argument is that families with one income-earner pay more tax than families with two income-earners - and that this situation unfairly penalizes families with stay-at-home moms (I presume moms, using "Leave it to Beaver" as your cultural reference doesn't really invoke stay-at-home dads).

This issue is really interesting to me. Ultimately, Canada's tax system is built on a series of principles, one of which is progressive taxation (people with more income pay more tax), and another is family-formation-neutrality (tax systems should not encourage or discourage particular family forms). The counterargument to the Fraser Institute is typically not that people with the same gross income should pay the same amount of tax, but that people in like situations should be treated similarly.

I would love to discuss this issue in more depth and hope others are interested too.

As an aside, I note that more than 70% of women with children under the age of 6 (I'm one of them, BTW) work outside the home. However, hard to know whether this is by choice or necessity...so I'm not sure one could effectively argue that fully 70% of people in a given category would make different choices if the tax system changed.
 

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That is a good topic - much better than the original one. :p

I honestly don't know if a single person should pay the same tax as a couple that make the same combined income.

When I was single I used to get annoyed by this and I always thought that it would be better once I got married. My taxes would stay the same but there would be more income. Of course now my wife is a stay-at-home mom so I'm back in the same situation. :)

I have thought about this a lot and I really can't think of any good reasons why a single person or couple/family with one income should get a tax break just because there is only one income.

This issue is more relevant for families where there is one fairly high income (that can support a family) and one person decides to stay home (for a few years at least). This doesn't affect low income families.

I guess you could argue that it would be good social policy to give single income families tax breaks to encourage 1 person to stay home but that would be opinion.
 

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The argument is that families with one income-earner pay more tax than families with two income-earners - and that this situation unfairly penalizes families with stay-at-home moms
While it may be unfair, I guess the pertinent question (which you touched on further down in your post) is, is it a disincentive? I tend to be skeptical of the idea that tax policies like this have a big effect on behaviour; I doubt the tax penalty enters into the equation (or at least is not a deciding factor) for most couples considering whether they can afford to make the switch to one income.

In my own life, I find that the only tax-related disincentive that affects my behaviour is that I'm less willing to take on projects that bring in extra money because I know they'll be taxed at my combined marginal rate, which is 48.2% (I'm in Quebec). So if my employer dangles a $1,000 publication bonus in front of me, I probably won't bother to do the extra work to write up a publication because I know I'll only get a little more than $500 out of it.

But the marginal tax rate doesn't, for example, discourage me from saving money even though the interest is taxed at the marginal rate. Similarly, I think that the "stay at home mom tax" is unlikely to discourage moms from staying at home. I think they'll make that decision for other reasons, and while the tax penalty isn't fun I have a hard time believing it would act as a barrier--except possibly in a few cases where people would only just barely scrape by on one income.
 

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I have thought about this a lot and I really can't think of any good reasons why a single person or couple/family with one income should get a tax break just because there is only one income.
FP. It is not that I am suggesting that a one income earner should get a tax break, I am suggesting that a one income earner should not pay more tax as a family then a family with two earners, earning the same family income. If you want to call it a tax break, fine, I call it tax fairness.

As for the OP comment about having children. I doubt he will be the first person to have what starts out as a friend, who turns into a significant other. I applaud him on wanting to do things above board. I do as well, but only when it is fair. When it is not, I do everything I can to make it fair. But again, I will appreciate his contribution to our tax burdens, if that is the route he/she chooses.
 

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By the way, once you have children, you are legally common law. CRA doesn't need to go into your bedroom to figure out whats happening there, once the little guys starts coming out of the woodwork.
 

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thanks for the clarification, MoneyGal.

what i really meant was filing, indicating common-law vs. filing, indicating single.

in regards to optsy eagle's suggestion: that's not really a route we'd like to go. regardless of whether CRA would clue in now, we plan on having children together and indicating single now would just cause problems with our tax returns down the road.
I wouldn't go that route either. Yes, you might lose some transfer payments like the GST credit but, hey, that's how it is.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/prsnl-nf/mrtl-eng.html?=slnk
 

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FP. It is not that I am suggesting that a one income earner should get a tax break, I am suggesting that a one income earner should not pay more tax as a family then a family with two earners, earning the same family income. If you want to call it a tax break, fine, I call it tax fairness.

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Fair enough (no pun intended) - I guess I used the term "tax break" since I'm assuming that it would mean less taxes for a single earner family which implies a break. But you are right - it's just a different way of applying taxes. Ie applying taxes based on family income rather than individuals.

The only way I could see something like this being implemented would be to tax households instead of individuals and raise the tax brackets so that the total amount of tax collected would have to remain constant.

There is no way this change could be made otherwise unless the government really cut back some services.

The net result would be that a single income family (like mine) would pay less tax, but it would be more than the amount of tax paid now by a dual-moderate-income family with the same family income.

Similarily, the tax paid by a dual-moderate-income family would go up.

This would make it more "fair" and you would end up with a lot of unhappy dual-earners and a bunch of single income families that are somewhat happy to pay less tax but the tax reduction might not be high enough to make much of a difference.
 

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This would make it more "fair" and you would end up with a lot of unhappy dual-earners and a bunch of single income families that are somewhat happy to pay less tax but the tax reduction might not be high enough to make much of a difference.
I remember reading somewhere that 70% of families are dual income. That's why addressing this issue might be a non-starter right now. The single-income families might be happy but you also have twice the number of seriously unhappy dual-income families. And unhappy voters are more likely to vote against you than happy voters are likely to vote for you.

PS: Just to be clear, I totally agree with the view point that the tax system is unfair to single-income earners and we are a dual income household.
 

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And those points are really my points. The system as it is, is unfair. The problem in getting it changed is all political. A dual income family may agree that our system is unfair, but I doubt they think they should pay more tax to in order to fix it. As we know, that is the only way to fix it, since we can't really cut the single earner's taxes without growing our deficit or cutting other services that will inevitably annoy other voters.

Soooooo... our political leaders do nothing, since being unfair to a few is better than angering the many. Democracy at work. That being said, I lived with my current wife for 6 years before I married her and I can tell you I had no problem declaring myself single for those 6 years.

Now as one poster indicated, our unfair tax system did not keep me from getting married. My wife is worth a lot more than a few dollars in extra tax, but that in itself does not make the system fair.
 

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And those points are really my points. The system as it is, is unfair. The problem in getting it changed is all political. A dual income family may agree that our system is unfair, but I doubt they think they should pay more tax to in order to fix it. As we know, that is the only way to fix it, since we can't really cut the single earner's taxes without growing our deficit or cutting other services that will inevitably annoy other voters.....
But why exactly is it unfair? In a progressive tax system the $100k income earner will pay more than twice as much taxes as someone who earns $50k. Are you really saying that a flat tax is more fair?
 

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And those points are really my points. The system as it is, is unfair. The problem in getting it changed is all political. A dual income family may agree that our system is unfair, but I doubt they think they should pay more tax to in order to fix it. As we know, that is the only way to fix it, since we can't really cut the single earner's taxes without growing our deficit or cutting other services that will inevitably annoy other voters.
Not really. If the Government is running a surplus, they could implement some sort of income splitting and not take something away from dual income families. Of course, the point is now moot since we don't have a surplus.

I'm wonder if full income splitting should be allowed would have unintended consequences. It might encourage more people to work less resulting in lower labour participation rates, which might have undesirable economic effects. I haven't thought this through entirely, so don't bite my head off here.
 

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For those who think that it is unfair that a dual-income family pays less tax than a single-income, two-parent family with the same household income, consider that the other spouse being able to stay at home is worth something, either in quality of life or in terms of 'home production' in childcare, home renovations, household work, etc. Thus, a two parent, single income family is actually 'better off'/wealthier than the dual-income family with the same income. You're all supposing that there is no value in the other spouse staying at home.

Now, if we want to talk about fairness, what about single-income, single-parent families? Seems to me that this group is genuinely treated unfairly.
 

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So if my employer dangles a $1,000 publication bonus in front of me, I probably won't bother to do the extra work to write up a publication because I know I'll only get a little more than $500 out of it.

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I'd look at is as "yeah, I'll take 500 bucks":)
 
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