Why does CRA care whether you are married, living common-law, widowed, divorced, separated or single?
Your marital status affects the benefits and credits that you may be eligible for including Canada Child Benefits, GST/HST credit and the Working Income Tax Benefit. The amount you receive is based on a combined family income. When you are married or common-law, these benefits may decrease because your combined family income has increased.
I know that most of us don’t want to receive less money but it is better to have them stop paying or reduce the benefits now, instead of getting a bill once they figure it out. And they usually do, especially after you file your first tax return together…unless you are being fraudulent, of course!
Conversely, when you get divorced, separated or widowed, your benefits may increase because your combined family income has now decreased. So, in this case, the benefit to you is obvious!
When should you inform CRA of this change?
Separated: CRA considers you separated when you have been living separate and apart for 90 days or more due to a breakdown in the relationship. The effective date of the separation is the day you started living apart and separate.
If you continue to live together in the same household, CRA will generally not consider a separation to have occurred unless you have separate living quarters. Also if you continue to share parenting and financial responsibilities under the same household, CRA will not consider a separation to have occurred.
Common-law: Generally this occurs after you have been living together in a relationship for at least 12 continuous months, unless you are the parent of your partner’s child or have custody and control of your child who is dependent on your partner for support. The common-law start date is the earlier date that your partner became the natural or adoptive parent or 12 months after you and your partner started living together.
To change your marital status with CRA, you can either complete the RC65 online form, send it to print and mail it to your local tax centre or if you are registered with the My Account service, you can update your marital status online.
Don’t forget, you may need to update your bank account information to ensure that your money does not get deposited into the wrong bank account. This could cause a big delay in payments to you that may be important.
Here are a couple examples using CRA’s online calculator:
Two individuals living in BC get married and move in together after the wedding. They each made about $30,000 per year and were receiving about $156 every quarter or $625 per year for the GST/HST credit. Once they are married, their combined income increases to $60,000 per year and they are no longer eligible for the GST/HST credit.
Example #1. Let’s say they got married January 1, 2019. When they file their 2018 taxes they indicated that they were single because as of December 31, 2018, they were not married yet. When they file their 2019 taxes, they indicate they are married. If they didn’t notify CRA of their marital change, they will have each received 6 payments (January, April, July, October 2019 plus January and April 2020) of approximately $156 each GST/HST that they were not entitled to. This amounts to owing CRA $1,872.
So the question is, would you rather CRA had stopped payment when you were no longer eligible or figure out how to repay it now? You make the choice.
Example #2. A married couple living in BC with 2 children aged between 6 and 17 have separated. The husband makes $30,000 and the wife makes $40,000. When they were married, with a combined family income of $70,000, they received approximately $644 per month or $7,728 per year for the Canada Child Benefit. The children decide to live with their dad so he is entitled to the benefit. With his income of $30,000, the child tax benefit to him increases to approximately $1,150 per month or $13,800 per year.
During what can be a stressful time in your life, the additional $6,000 per year can help. When your 90 days of separation is up, my recommendation is that you definitely update your status with CRA.
Example #3. Using the same income numbers as Example #2 but now the two individuals are living together as common-law. Your Canada Child Benefit decreases from $1,150 per month to $644 per month or a difference of $6,000 per year.
Would you rather them reduce it upon being notified that you are common-law or send you a bill for $6,000 the following year when you file your taxes?
These are things to consider when your marital status changes. A good thing to keep in mind is that CRA will eventually find out based on your tax filing, so all you really have to decide is: receive the money now and pay it back later or update your marital status?
**This blog is for information only and not to be used as tax advice or planning without first seeking professional advice. Information is subject to change without notice.