Fundamental change in Canadian tax law for same-sex partners was proclaimed to be in effect January 1, 2001. In the Income Tax Act, the definition of “spouse” was broadened to include same-sex partners. Accordingly, the income tax rules that are in place for unmarried (common-law) spouses will now apply to same-sex partners. The Canadian Income Tax Act will treat all married and common-law spouses the same for income tax purposes.

After January 1, 2001, same-sex partners who live in a conjugal relationship will automatically be considered common-law partners for income tax purposes if; they have cohabited for a continuous period of at least one year, or they the are parents of the same child, and they are not separated from each other.

Before April 30, 2001, same-sex partners who would have met the definition of spouse in previous years can jointly elect to have the new rules apply to them retroactively starting in 1988, 1999, or 2000.

Some of the advantages are as follows:

1. The ability to make spousal R.R.S.P. contributions, which are designed to allow for income splitting upon retirement;
2. The ability to transfer unused personal credits and charitable donation to a spouse with higher income;
3. The ability to make a spousal rollover of R.R.S.P., and apply for spousal pension and survivor benefits on the death of a spouse;
4. The ability to claim the spouse credit.

Some of the disadvantages are as follows:

1. Where both spouses work, tax credits and benefits that are calculated based on family or household income will likely be reduced as the earning of both spouses must now be included. Such credits and benefits include the G.S.T. credit and the child tax benefit;
2. The application of the attribution rules means that where assets have been transferred or loaned to a spouse, subsequent capital gains and income generated by the transferred assets will be taxed in the hands of the transferor spouse, in order to avoid income splitting between spouses;
3. Spouses are restricted to claiming the principal residence exemption in respect of only one dwelling per family unit at any time;
4. The spouse with the lower income must claim childcare expenses.

Please bear in mind that this list is not exhaustive and there may be exceptions or transitional rules affecting each item. There may also be evidentiary issues so be sure to document the existence of your same-sex relationship so that future claims may be proven.