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The Tax Implications of Separated Couples Living Under the Same Roof — A Canadian Tax Lawyer Explains

Canada Revenue Agency Only Recognizes Separated Couples Who Live Separately

Commonly separation occurs when a former couple moves to separate living arrangements. But it’s generally accepted that couples who live together can be considered separated if they have the intention to be separated, they sleep in different rooms, have independent social ventures, etcetera. This standard may be good enough in some family law cases, but separated couples who still live together are generally not separated in the eyes of the Canada Revenue Agency (CRA).

To meet the Canada Revenue Agency’s definition of “separated” means living apart from a spouse or common-law partner for at least 90 days due to a breakdown in the relationship. After the 90 days, the effective date of the separation is established. The Canada Revenue Agency’s definition of separated thus precludes couples who reconcile their relationship within 90 days or who are involuntarily apart due to school, work, or other circumstances.

Therefore, couples who have agreed to end their relationship without a legal divorce and who still live under the same roof may still considered together in the eyes of Canadian tax law. The exception is if the two individuals live under the same roof but in their own personal, self-contained quarters. The two individuals are generally considered separated in this circumstance if they don’t share parenting and financial responsibilities.

However, this point has been contested at the Tax Court of Canada. In R v Aukstinaitis, the appellant claimed she was entitled to certain tax credits because she and her former partner were separated, despite living together and sharing parenting and financial responsibilities. The Tax Court of Canada ultimately agreed with the appellant because she and her former partner were financially independent of one another, lived in separate rooms, and even had separate fridges and groceries. Further, the appellants housed her ex-partner (also the father of her child) because he had nowhere else to go. The Tax Court of Canada felt that the appellant was trying to be a responsible parent and shouldn’t be penalized for doing so.

Many tax credits, deductions, and benefits, of which are administered by the Canada Revenue Agency, are determined by household income. Separated couples can benefit from a smaller household income, because it’s now based on one person’s earnings instead of two. The rules on what qualifies as “separated” prevent couples from claiming that they are separated purely to gain a tax benefit.

The Tax Implications of Separated Couples Once They Move to Different Locations

If the two individuals move away from each other for more than 90 days, the Canada Revenue Agency will consider them as separated effective after the 90th date. At this point, it’s the responsibility of the individuals to change their marital status by either calling the Canada Revenue Agency or by using the online Canada Revenue Agency portal, which has a “Change my Martial Status” feature. Another option is to fill out the RC65 Marital Status Change form.

If the physical separation has not reached 90 days yet and either spouse has to file their income tax or apply for a tax credit, deduction, or benefit, they’re still considered married or in a common-law partnership.

Further, once the Canada Revenue Agency accepts that a former couple is now separated and apart, it will immediately affect a number of benefits such as the Canada Child Benefit and GST/HST credits.

Tax Tips from an Experienced Canadian Tax Lawyer on the Tax Liabilities of a Separation

If you and your partner are preparing to separate from each other, whether you remain in the same household or not, it’s important to speak with an experienced Canadian tax lawyer. A tax lawyer is a specialist in taxation law and can provide insights into your relationship’s tax liabilities in a way that a family lawyer or an accountant cannot. If you and your former partner don’t take the proper steps in declaring your separation to the Canada Revenue Agency, then it could lead to accusations of tax fraud, which may result in fines and possible jail time. You may also miss tax benefits that you’re newly entitled to due to the change in your marital status.

One of the major issues of separated couples is when they still live together. Other Canadian laws may deem you and your former partner as separated when you still live under the same roof, but tax law may not. The rules regarding whether a couple is separated when living under the same roof in tax law is extremely complicated. It will take an experienced Canadian tax lawyer to argue for your best interest if the Canada Revenue Agency disagrees with your position. Proving that you and your former partner are separated for tax law purposes means that your family net income for tax purposes is based on only your income and not the sum of you and your ex-partner’s. This can result in more refundable tax credits.

With help from one of our experienced Canadian tax lawyers, we can guide you on how to properly establish your separation to the Canada Revenue Agency. We can also advise on how your separation will affect your RRSP, Canada Child Benefits, GST/HST credits, and more. Some of these credits and benefits will change or may no longer be allowed, and the Canada Revenue Agency may consider it tax fraud if you continue to claim them or to claim them improperly.

Disclaimer:

"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

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