Principal Issues: (1) Is the CRA still of the view that separated individuals can continue to share the same residence and be considered as living separate and apart for Canadian income tax purposes? (2) What are the processes and policies that are followed by the CRA when a couple claims to be separated, while still living under the same roof? (3) In such a situation, what information must be provided by a taxpayer in order to have his or her separation recognized by the CRA for Canadian income tax purposes?
Position: (1) Yes. (2) The CRA generally accepts the marital status declared by an individual on his or her income tax return when assessing the return. However, certain claims made on the return may be reviewed, either before or after assessment. Additional information pertaining to the individual’s marital status may be requested at that time. In the case of a claim for child and family benefits, such as the Canada Child Benefit and the Goods and Services Tax/Harmonized Sales Tax credit, where a separated couple remains at the same address and a change in marital status is requested, the CRA will generally request information before changing the status of the individuals and disburse the tax benefits claimed. (3) List of pertinent information provided.
Reasons: (1) It is the CRA's long standing position that it is possible for separated individuals to live separate and apart, while still occupying the same residence. However, whether individuals live separate and apart for Canadian income tax purposes is a question of fact that must be determined on a case-by-case basis. (2) ABSB, Individual returns Directorate and Benefit Programs Directorate’s process. (3) ABSB, Individual returns Directorate and Benefit Programs Directorate’s process.
ROUNDTABLE ON THE TAXATION OF INDIVIDUALS, FEBRUARY 2, 2017
QUEBEC ORDER OF CPAs
1.3 –Living separate and apart under the same roof
The CRA has recognized in different technical interpretations that it is possible for two individuals to live under the same roof while at the same time being separated. This has been stated in Technical Interpretations 9714368, 9902035, 9933028, 2010-0364841E5 and 2010-0377532M4. Furthermore, in Technical Interpretation 2010-0377532M4, the CRA recognized that this principle also applied to the Canada Child Tax Benefit and not only the Eligible Dependent Tax Credit. The definition of "cohabiting spouse or common-law partner" under section 122.6 of the Income Tax Act (the "Act") supports this CRA comment and also applies to the new Canada Child Benefit ("CCB"). Moreover, several of these Interpretations refer to the points to be considered in determining that two individuals live separate and apart, but under the same roof.
A number of Tax Court of Canada decisions have also recognized this possibility. These decisions include Longchamps, 86 DTC 1694 (a decision cited repeatedly by the CRA in the Technical Interpretations referred to above and in the case law generally), Rangwala, 2000 DTC 3652, Sigouin, [2002] 1 CTC 2596, Uwasomba, 2002 DTC 3944, Benson, [2003] 2 CTC 2431, Bellavance, 2004 TCC 5, Aukstinaitis, 2008 TCC 104 and Perron, 2010 TCC 547. The Administrative Tribunal of Québec has also repeated thistime and again, most recently in the decision in 2014 QC TAQ 11236, where the judge, in finding in favour of an individual who claimed that he no longer had a spouse even though the two were still living under the same roof, stated:
"The Régie, according to its operational practices, applies an unnuanced standard under which the parties having broken their marital bond or obtained a divorce or separation agreement is not sufficient: if they are still living under the same roof, they are still spouses within the meaning of the Act. This interpretation cannot be accepted. In section 2.2.1 of the Act, the legislator contrasts the concepts of "living in a conjugal relationship" and "living separate and apart." Section 1029.8.61.12.3 of the Act does substantially the same. Under no circumstances does the legislator directly use cohabitation criteria."
In addition to the actual intent to separate, the courts also consider a number of factors to determine whether, in fact, two persons living under the same roof are living separate and apart at a particular time. They have examined whether the usual behaviour and patterns of spouses were present, such as mutual social activities, communication between them, discussions of family problems, sexual relations, and so on. To a lesser extent, they have also examined whether spouses were providing certain domestic services, such as meal preparation or laundry. Finally, the courts have considered the reason why the spouses continued to live in the same residence, notwithstanding their intention to live separate and apart. Most of these criteria were cited for the first time in Molodowich v. Penttinen (1980), 17 R.F.L. (2d) 376 (Ont. Dist. Ct.), a decision of the Superior Court of Ontario. These were also cited by the Supreme Court in M. v. H. [1999] 2 SCR 3. The Molodowich decision is often cited in the various court decisions on this subject and the criteria listed therein have even been taken up by the CRA in Technical Interpretation 2006-0198341E5. The concept of living separate and apart while living under the same roof is a principle that has been strongly established for decades, whether in family law, tax law or under the Divorce Act.
In practice, in light of certain files that have come to our attention, it seems very difficult for a taxpayer to be recognized as being separated while living under the same roof as the taxpayer's former spouse. It is generally necessary for the individual to go to the objection stage to defend this position. Although the CRA's initial stance in such a case (of considering the two individuals living under the same roof as being spouses as long as neither one leaves the home) seems justified in order to avoid abuses, the facts of the taxpayer’s situation should be the subject of a fair and complete analysis to determine whether the taxpayer is separated or not, as specified in Technical Interpretation 2010-0377532M4:
"Where there is only one distinct household unit, the CRA will undertake a more in-depth review to determine whether the individuals are living separate and apart. As part of its review of a particular case, the CRA will give consideration to the existence of a court order or agreement; however, the only legal authority for determining benefit eligibility is the ITA. The general requirement is there must be an intent by one or both of the spouses to separate."
However, it appears that CRA officials use an initial approach of systematic refusal despite the very clear jurisprudence and technical interpretations published by the CRA for many years. The CRA Website also states that "If you continue to live together and share your parental and financial responsibilities, the CRA will not consider you to be separated for the purposes of the CTB and the tax credit for GST/HST."
In practice, however, it is not uncommon for persons who are spouses to continue living under the same roof while awaiting the sale of their residence, which may take a number of months (4, 6, 8, 10 months or even longer, depending on the region in Canada, although this is a temporary situation), to minimize the financial impact of separation. However, during this period, the sound criteria established by the courts will often be satisfied.
Questions to the CRA
(a) Can the CRA state whether it still is of the view that two individuals can live separate and apart, while remaining under the same roof?
(b) Can the CRA provide more details on the procedures or policies currently followed by its employees when an individual claims to be separated while still living under the same roof as his or her former spouse?
(c) Can the CRA indicate the information that should be provided by two individuals who are separated but who live under the same roof in order to have their separation recognized promptly without having to go to the objections and appeals division to defend their position?
CRA Response to Question 1.3(a)
According to the CRA's long standing position, two individuals can live separate and apart while remaining under the same roof. The generally accepted criteria to determine whether two individuals live separate and apart were stated in Molodowich v. Penttinen (footnote 1) and affirmed by the Supreme Court of Canada in M. v. H (footnote 2). These include shared shelter, sexual and personal behaviour, services rendered between them, social activities and relations, economic support and children, as well as the societal perception of the couple.
The question of whether two persons are living apart for the purposes of the Income Tax Act is a question of fact which can only be resolved after a full review of all facts, actions, circumstances and documents relevant to the particular situation. Despite the fact that there are various elements to consider in determining whether two individuals are living separate and apart, it is not necessary that all these elements be present in a particular situation. In addition, as noted by the Supreme Court of Canada in M. v. H., the weight to be given to each of these elements may vary from one situation to another.
CRA Response to Question 1.3(b)
Given the principles of self-assessment and voluntary compliance under the Canadian tax system, the CRA generally accepts a person's marital status as declared by a taxpayer when filing his or her income tax return. Generally, an initial notice of assessment is issued on the basis of the information provided by the taxpayer. Certain tax credits or deductions may, however, be subject to an audit, either before or after the issuance of a notice of assessment, when requested by a separate taxpayer who remains at the same address as the taxpayer’s former spouse or former common-law partner. In such a case, information and documents may be required to demonstrate that they are actually separated for the purposes of the Income Tax Act.
In a claim for benefits, such as the CCB and the credit for Goods and Services Tax/Harmonized Sales Tax, where a separated couple remain at the same address and a change in civil status is being sought, the CRA will generally make a request for information before changing the status of the persons concerned and disbursing the claimed tax benefits. In order to expedite the process, taxpayers should therefore provide sufficient evidence with their claim for benefits. Otherwise, evidence that the taxpayer and his or her former spouse or former common-law partner live separately may be transmitted in response to a CRA letter for validation.
CRA Response to Question 1.3(c)
Where a taxpayer and the taxpayer’s former spouse or common-law partner state that they live at the same address but in two separate housing units, the following documents may be provided to support their return:
- A copy of the municipal assessment roll showing two separate housing units;
- A copy of each home insurance policy or a joint policy with an addendum for the second home.
Where a taxpayer and the taxpayer’s ex-spouse or former common-law partner state that they are living at the same address, but consider themselves as merely roommates from the date of separation, the following documents may support a request for validation:
- Divorce document;
- A court order or a legal separation agreement that sets out legal details of the arrangements for the individuals, child custody and provision for child support;
- Other legal documents;
- Mortgage documents showing the assumption of the entire mortgage by one of the parties and the effective date of the change;
- Proof of individual vehicle loans indicating the effective date of the change, if applicable;
- Proof of automobile insurance for each former spouse or common-law partner indicating the effective date of the change (from family to individual);
- Proof of individual medical insurance indicating the effective date of the change or the date the spouse or common-law partner was removed from the client's file;
- Individual credit card statements indicating the effective date of the change, if applicable;
- Letter from an independent third party, supplemented by persons in authority, attesting that the two individuals live at the same address but live separate and apart and no longer appear as a couple since a certain date.
It should be noted that the production of a limited number of supporting documents may not be sufficient to demonstrate that individuals are living separate and apart for the purposes of the Income Tax Act. The CRA must examine all available information to conclude that a taxpayer and his or her former spouse or common-law partner are living separate and apart despite continuing to live under the same roof.
Marie-Claude Routhier
(613) 670-8921
February 2, 2017
2016-067482
Prepared in collaboration with Sheila Barnard (question 1.3(b))
Legislation Section
Services and Program Support Division
Individual Returns Branch
Assessment, Benefit and Service Branch
Prepared in collaboration with Claudine Chauret (questions 1.3(b) and c))
Legislation Section
Special Programs and Partnerships Division
Benefits Programs Directorate
Assessment, Benefit and Service Branch
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 (1980), 17 R.F.L. (2d) 376 (ON SC)
2 [1999] 2 SCR 3, paragraph 59.