tax question - common law relationship

[urban1]

I have a family member who may or may not be in a jam with the taxman.

Any advice or opinion on this situation:

She has lived in commonlaw relationship for approximately 3 years. She and her partner have always filed taxes individually. Im guessing this was done out of ignorance more than anything else.

They have no purchased a home together and have decided they should file jointly this time around. 2007 will be the first tax year they will file as a common-law couple.

I suspect the chances are rather high that they will get flagged. Theyve had the same address for the past 3 years; Id suspect the taxman's computer has screens for red flags and this would be one of them.

Am I correct in assuming they have a good chance of getting audited? I dont think the commonlaw couple would try to argue that they were only roommates and not a couple.

Other than being reassessed and owing back taxes and interest, are there any other penalties they would face?

Anyone here go through a similar situation?

[CSK'sMom]

This might help... http://www.cra-arc.gc.ca/tax/individuals/topics/income-tax/return/completing/personal-info/marital-e.html

I'm guessing this was not done out of ignorance. ;) At the very least they will have to pay back GST rebates and other credits may be affected as well. Anything that is based on combined family income. And yes, you are right, this should definitely throw some red flags when they file this year. We know quite a few couples that have been caught the past couple of years...

[species5618w]

It would seem that it's pretty hard to prove they were in a "conjugal" relationship. What if they were roommates?

[brunes]

I have a family member who may or may not be in a jam with the taxman.

Any advice or opinion on this situation:

She has lived in commonlaw relationship for approximately 3 years. She and her partner have always filed taxes individually. Im guessing this was done out of ignorance more than anything else.

They have no purchased a home together and have decided they should file jointly this time around. 2007 will be the first tax year they will file as a common-law couple.

I suspect the chances are rather high that they will get flagged. Theyve had the same address for the past 3 years; Id suspect the taxman's computer has screens for red flags and this would be one of them.

Am I correct in assuming they have a good chance of getting audited? I dont think the commonlaw couple would try to argue that they were only roommates and not a couple.

Other than being reassessed and owing back taxes and interest, are there any other penalties they would face?

Anyone here go through a similar situation?

If it was an honest mistake they should not be so worried about being audited.

Besides, depending on how their income is distributed among them and the deductions each had during those years, an audit may result in a generous REFUND. Filing jointly can have tax advantages for both parties.

[Piccolo]

It would seem that it's pretty hard to prove they were in a "conjugal" relationship. What if they were roommates?
If a person is audited It will be their responsibility to validate that it was not a common-law relationship. You could be just roommates with the same address, but if you have joint bank accounts, mail addressed to both occupants etc. then you can be perceived as a couple is a conjugal relationship.
http://www.cra-arc.gc.ca/benefits/marital-e.html
4. Why do we validate marital status?
Information from our reviews shows that marital status is sometimes reported incorrectly. If the wrong marital status is reported it may affect the calculation of family benefits and credits.

[Piccolo]

If it was an honest mistake they should not be so worried about being audited.

Besides, depending on how their income is distributed among them and the deductions each had during those years, an audit may result in a generous REFUND. Filing jointly can have tax advantages for both parties.

I hated filing jointly. I was so glad when I was able to file on my own again. Definitely wasn't an advantage in my situation.

I was audited once (before i was married/divorced) they asked for my rental reciepts, but i wasn't able to provide them. I was young and niave and "ignorant". I called up the number and explained what happened and they lady was very kind and said all I needed was to send a letter with the address of where i rented and how much. I have learned my leason and i guess ignorance can be a defence.

START to file jointly now, but would not worry about the past.

[batman321123]

It would seem that it's pretty hard to prove they were in a "conjugal" relationship. What if they were roommates?

It's actually the taxpayers' job to prove that they were NOT in a conjugal relationship.

[species5618w]

It's actually the taxpayers' job to prove that they were NOT in a conjugal relationship.

How can one prove something didn't happen? If that's the case, the CRA can claim I am having a conjugal relationship even if I share with a guy, can't they? How can I prove I am not gay or bi-sexual?

[Piccolo]

How can one prove something didn't happen? If that's the case, the CRA can claim I am having a conjugal relationship even if I share with a guy, can't they? How can I prove I am not gay or bi-sexual?

Before the goverment would ask for proof they would have had reason to believe it was a conjucal relationship. Such as a joint bank account and mail address to both parties or the relationship was already stated as common law on an unrelated form etc.

It would be the tax payers responsibility to proof that it was not a common law relationship. It would be easy enough to prove if it wasn't.

I honestly dont think the government would take action unless it was a couple living together for years and years.

[CSK'sMom]

I honestly dont think the government would take action unless it was a couple living together for years and years.

Wrong, the CRA has somewhat aggressively been going after these types of situations for a couple of years now. As I said, we know several couples that have been caught. A search here at RFD will also turn up a few members who have posted about being caught as well. The big thing is the GST rebate. Because it goes on combined income most DINK's (double income, no kids) don't qualify for it or have it greatly clawed back. Now if they file as a single and both qualify for the full amount they could end up paying back $1000 or so for each year. The couples we know that have been caught had lived together for anything from 2 to 5 years when they were caught. A couple of them ended up owing a substantial amount of money when all was said and done...

[Piccolo]

Wrong, the CRA has somewhat aggressively been going after these types of situations for a couple of years now. As I said, we know several couples that have been caught. A search here at RFD will also turn up a few members who have posted about being caught as well. The big thing is the GST rebate. Because it goes on combined income most DINK's (double income, no kids) don't qualify for it or have it greatly clawed back. Now if they file as a single and both qualify for the full amount they could end up paying back $1000 or so for each year. The couples we know that have been caught had lived together for anything from 2 to 5 years when they were caught. A couple of them ended up owing a substantial amount of money when all was said and done...
Wow... I must say that ... sucks ... I thank you for correcting my ignorance in this matter.

I was actually trying to do a search for the criteria of a conjugal relatioship (besides the obvious).
Do you know what the government would consider when determining this type of relationship (again .. besides the obvious ;) )?

[CSK'sMom]

Who really knows? Only the CRA employees is my guess. I know the people we know who got caught shared living expenses with seperate bank accounts. One of the things the CRA wanted was rent reciepts from both of them. The one paying the landlord and the "roommate". They also wanted to see leases if they rented. Roomates don't tend to rent one bedroom apartments. ;) One couple they wanted a copy of their insurance policy for their vehicles. Roommates don't tend to put each other on auto policies. ;) Another couple we know figues that the red flag for them was buying a house together (like the OP) after living together in a rental for 2 years. I know for a fact that claiming both rent and property tax in the same tax year is a red flag in the system that results in a request for additional info (it's happened to us a couple of times). They had both names on their rental lease and the house they bought which no doubt caused someone at the CRA to take a closer look....

[TopTaxGuy]

I'm not sure what you mean by "filing jointly." In Canada each files separate tax returns and discloses the other spouses income on their return.

If this was overlooked in the past, both can make a voluntary disclosure to the CRA and explain the situation. They will be on the hook for interest and penalties but if their income is low, it should not be a problem. The impact will be most likily be to the GST credit, which, if there is an aoutstanding amount owing, the CRA will withhold until paid in full. The can also discuss repayment options with the CRA.

I would not be that fearful of the situation. An audit is not fun but it it not a inquisition.

Good Luck.

[brunes]

It's actually the taxpayers' job to prove that they were NOT in a conjugal relationship.

I don't get this part of the law...

Do you mean to tell me that if a male and female live together, that the burden of proof is on them to show they ARE NOT in a conjugal relationship - but if a male and a male live together and want to do various forms of income splitting the burden of proof is on them to prove they ARE in a conjugal relationship?

How can that kind of discrimination be allowed under the Charter?

[species5618w]

Who really knows? Only the CRA employees is my guess. I know the people we know who got caught shared living expenses with seperate bank accounts. One of the things the CRA wanted was rent reciepts from both of them. The one paying the landlord and the "roommate". They also wanted to see leases if they rented. Roomates don't tend to rent one bedroom apartments. ;) One couple they wanted a copy of their insurance policy for their vehicles. Roommates don't tend to put each other on auto policies. ;) Another couple we know figues that the red flag for them was buying a house together (like the OP) after living together in a rental for 2 years. I know for a fact that claiming both rent and property tax in the same tax year is a red flag in the system that results in a request for additional info (it's happened to us a couple of times). They had both names on their rental lease and the house they bought which no doubt caused someone at the CRA to take a closer look....

Wow, remember a couple months ago, a guy modified his house to rent them out to 18 people? I will bet they didn't have proof that they were not 9 couples. :D And I definitely had my roommate's name on my insurance since the price actually dropped a little (him being a more experienced driver) and we shared expenses.

Aside from GST, there are also student loans, welfare payment, pension supplements, etc... It could be a lot of money.

I guess the only sure way is to buy a marriage certificate with a phantom person from abroad, then the government would have no legal case since one can not be married to two different person at the same time. Right? :D

[ghostryder]

I don't get this part of the law...

Do you mean to tell me that if a male and female live together, that the burden of proof is on them to show they ARE NOT in a conjugal relationship - but if a male and a male live together and want to do various forms of income splitting the burden of proof is on them to prove they ARE in a conjugal relationship?

How can that kind of discrimination be allowed under the Charter?

That's not how it works. If you are assessed as being in a common law relationship and you disagree with that assessment it is up to you to prove that you are not in a common law relationship. Regardless of whether it is a same or opposite sex couple.

[species5618w]

That's not how it works. If you are assessed as being in a common law relationship and you disagree with that assessment it is up to you to prove that you are not in a common law relationship. Regardless of whether it is a same or opposite sex couple.

Doesn't make sense to me. By the same reasoning, if I was assessed as being a murderer and I disagreed with that assessment (I hope I would), it would be up to me to prove that I was not a murderer? Well, even that is easier than to prove I am not in a common law relationship with my roommate.

[ghostryder]

Doesn't make sense to me. By the same reasoning, if I was assessed as being a murderer and I disagreed with that assessment (I hope I would), it would be up to me to prove that I was not a murderer? Well, even that is easier than to prove I am not in a common law relationship with my roommate.

Except tax law is not the criminal code. There are certain things with respect to tax that if you disagree with the assessment it is up to you to prove that the assessment is wrong.

[batman321123]

Wow... I must say that ... sucks ... I thank you for correcting my ignorance in this matter.

I was actually trying to do a search for the criteria of a conjugal relationship (besides the obvious).
Do you know what the government would consider when determining this type of relationship (again .. besides the obvious ;) )?

Ya... can't share that info with ya ;)

All I'll say is that if you are legitimately living with a roommate and not a common law partner, it should be easy for you to prove your innocence.