Re-assessed Taxes After Marital Status Change

Canada Revenue Agency (“CRA”) recently changed my marital status from single to common law since my child was born.  Now I’ve been re-assessed and requested to reimburse them for income tax, child tax benefit and GST/HST credits.  Would bankruptcy erase these debts?

Maybe – CRA may pursue you for fraud and misrepresentation, and if successful, then a bankruptcy will NOT clear you of these debts.  However, in my experience, if you file for bankruptcy, it is unlikely that CRA would pursue you for any fraudulent action and any debt that you owe them would be extinguished when you are discharged.

People are often confused by what constitutes a “common-law” relationship.  In BC, the Family Relations Act definition refers to living and having a child together or lived with another person in a marriage-like relationship for a period of at least 2 years.  CRA only requires one year of living together to be considered in a common law relationship for tax purposes.

This case reinforces the view that when you are married or living common law, that you must disclose your partner’s income on your tax returns and vice versa.  This is the case even if you otherwise keep your finances separate and apart.  Family income is what determines the level of benefits that you receive such as Child Tax Benefit, GST/HST credits and other provincial credits that may be available. It also has an effect on the amount of tax you pay if you claim the child as an eligible dependent (which you can’t).  If you don’t disclose your partner’s income, it may lead directly to the above situation.

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