Common-law relationships are a growing trend in today’s society. According to findings from the 2006 census, for the first time, there are more unmarried adults in the country than those in legally sanctioned unions. It is estimated that common-law partners now account for 51.5% of Canada’s adult population.

Under the federal Income Tax Act, you are considered to be in a common-law relationship if you live together in a conjugal relationship for a period of 12 months, or lived together for a shorter period of time but raising a child together. By meeting either of these tests you must file as a couple. It is not optional and if it is later determined that you should have filed as a couple you may be subject to interest and penalties for any tax owing.

Common-law status can have its advantages from a financial perspective. As a common-law couple you have the ability to transfer assets between each other without triggering capital gains or losses.

Common-law couples may contribute to spousal RRSPs. A spousal RRSP can come in handy during early retirement as the new pension splitting rules do not apply to registered saving accounts until after age 65.

In situations where one common-law spouse has income below the threshold of $9,600 (based on the 2007 tax year) the spousal tax credit is available to the higher income spouse. Common-law couples also have the ability to transfer certain credits back and forth between partner’s including the age, pension income, charitable donation, disability, tuition, textbook and education tax credits.

As you can see there are some definite advantages for common-law couples however, there may also be some disadvantages. If either partner was claiming an eligible dependant credit, they will no longer be entitled to make this claim as a common-law couple.

As a couple there is only one principle residence exemption available per couple. If one partner owned a home and the other owned a cottage as single people, they would both enjoy an exemption on any gains. Common-law couples are only granted an exemption on one property.

Other benefits may be lost, as common-law couples are required to pool their income for eligibility for certain benefits. These include the Guaranteed Income Supplement, Guaranteed Income Allowance, the GST credit and the Canada Child Tax Credit.

These are just a few of the financial issues that face common-law couples. We strongly urge you to seek professional assistance to suit your personal circumstances.

This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of Fundex Investments with your topics of interest at 798-2421 or E-mail at rick@invested-interest.ca.