COMMON-LAW couples
could find life both more
and: less taxing after next
Jan. 1.

Michael

effect’ — treating . common-law
couples the same as married cou-
ples‘ as far as income tax is con-

‘The changes. will vhave a
significant ‘ impact: on people in
common-law relationships,’ said
Elio- Luongo, tax manager for
KPMG: Peat ° Marwick . Thorne,
. Chartered ‘accountants. ‘‘Some of
these. changes will result in tax

F others cin incfeased tax

ts.
: "Welcome. to the ‘North Shore
News’: annual summertime series
Of tax tips.

Now, during this relatively quiet
financial part of the year, we

" present. various ‘planning ideas to

help you save money — while you
still : have. . ‘time to implement
strategies that relate to your situa-
tion and so: keep your tax bill for
this year as low as legally possible.

Q _ For ‘common-law. couples, this

BUSINESS

Common-law couples should be
aware of next year’s tax changes

first column will also help you
prepare for the possibility of both
higher and lower taxes starting in
1993,

Note: Use this information to
get your planning under way. But
you will probably need to do more
tesearch and possibly consult with
a tax expert before rearranging
your finances or taking other
steps.

If you are in a common-law
telationship and wholly support a
child under 18 (this age limit is
being fought in the courts) or a
(grand)parent in your household,
you may claim the equivalent-
to-married exemption for that
dependant — and save up to
about $1,450 in tax, Luongo said.
Only one such claim may be made
fer each household.

Under the new rules, this ex-
emption will disappear in a com-
mon-law household.

(Under the Income Tax Act, a
common-law partner in a rela-
tionship will be considered a
spouse for tax purposes if he or
she is ‘‘a person of the opposite
sex who is cohabitating with an
individual in a conjugal relation-
ship and has so cohabited for at
least one year,’’ or has had a child
with the other individual — ex-
cluding the parents of a child who
are living apart.)

Child-care expenses are a
deduction (rather than a credit);
the higher your tax bracket, the
more {ax you save. In a mairiage,
the spouse with the lower income
must claim child-care expenses —
even if the higher-income spouse
paid them. °

Because there is no spouse in a
common-law relationship, the
higher-tax-bracket person may
deduct the child-care expenses if
he/she pays them. That will no
longer be the case starting next
year.

Common-law couples now are
treated as separate individuals

when calculating the child tax
credit and GST credit. That often
enables them to claim more of a
tax break than a married couple,
whose incomes are added together
to determine how much of the
credit they may receive. Com-
mon-law couples will lose this ad-
vantage under the new rules.

Now for some good news.
When one spouse has little or no
income, the other may claim a
married credit — saving up to
about $1,450 tax. Common-law
couples will benefit from this rule
from 1993 on.

If you are married, you may
contribute to a spousal RRSP for
your spouse. That can save tax in
the future if your spouse will be in
a lower tax bracket than you when
the RRSP funds are taken out
(subject to ‘‘the three-year rule’’).
Common-law partners will be able
to use this strategy starting with
the 1993 tax year.

One spouse may claim both the

Wednesday, July 29, 1992 - North Shore News - 47

One way to avoid attribution is
to Jend or give money to your
lower-tax-bracket (common-law)
spouse to pay down the mortgage,
he said. That: would free up the
spouse’s money for investing.

Common-law spouses will
benefit from the special rollover
rules at death to surviving spouse
of assets like investment property
and stocks, allowing (a) a tax-
deferred transfer, or (b) a transfer
at fair market value.

Making the right choice can
often save or at least defer thou-
sands of tax dollars.

Mike Grenby is a North
Shore-based_ columnist and_in-
dependent financial adviser who
works with individuals.

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medical expenses and charitable
donations incurred/made by the
other which can produce a higher
tax saving. This rule deesn’t apply
in’ a common-law relationship
now but will for the 1993 tax
year.

If you give or lend money to a
spouse (or try to shift incomes to
that spouse’s lower tax bracket,
for example), in many cases you
must still declare the income and
profits earned by that money.

Common-law partners have
escaped the attribution rule until!
now, but that will change next
year.

“These rules may even affect
transactions entered into this
year,’’ warned Luongo, ‘‘so if you
are living common-law, don’t
rush out to transfer property or
money to your partner. Once the
new rules are in place, the income
will attribute back to you
tegardless of when the transfer

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