One of the most contentious issues faced by tax preparers when completing clients’ personal income tax returns is whether a couple is simply living together — or living together in a manner treated by the Canada Revenue Agency (CRA) as “married”. This delicate area of personal beliefs can generate legal and income tax problems with a long-term impact on the individuals in the relationship.

The source of the problems is usually the belief by the parties in the relationship that they cannot be treated as married if they do not have a signed marriage certificate.

In Canada, it is true that there is no such thing as common-law marriage; no relationship matures into marriage merely by the passage of time, as some people believe. In Ontario, a couple must have “cohabited” for three years, which means they must satisfy certain conditions other than merely living together before they are classified as common-law spouses; periods in other provinces vary between two and three years. Cohabitation is defined by the following seven factors established in Moldowich v Penttinen:

1.  Shelter: Was accommodation shared by the unmarried couple?

2.  Sexual and Personal Behaviour: Was the relationship intimate and perceived to be so by others?

3.  Services: Did the couple share the traditional functions of a family?

4.  Social: Did partners present themselves as a couple to the outside world?

5.  Societal: How was the couple treated by their community?

6.  Economic Support: Were the unmarried parties economically interdependent?

7.  Children: Did the couple see children as part of their home and interact as parents with each others’ children?

How the CRA Sees It

Couples who have cohabited for more than 12 months but less than the statutory period that would establish them as common-law spouses in their province of residence are often surprised to find the CRA has categorized them as “common-law partners” and thus treats them as “married” for tax purposes. The CRA’s website defines common-law partners as follows:

“A common-law partner applies to a person who is not your spouse with whom you are living in a conjugal relationship, and to whom at least one of the following situations applies. He or she:

a) has been living with you in a conjugal relationship for at least 12 continuous months;

b) is the parent of your child by birth or adoption; or

c) has custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support.” 

This is essentially a summary of the definition found in the Income Tax Act.

Individuals living together and wishing to establish that they are not married or living common law must establish that they are not living in a conjugal, i.e., sexual, relationship. If such a relationship has continued for 12 consecutive months (not necessarily beginning in the particular year), the CRA recognizes it as a common-law relationship. Individuals who live together for financial, physical or emotional reasons, especially if points (b) and (c) are in play but do not want to be categorized as common law for tax purposes should be aware that if the relationship becomes conjugal it would become a common-law relationship in the eyes of the CRA.

Common Law Changes Tax Status

The significance of retaining “single” taxpayer status should not be dismissed lightly. Putting aside other legal issues, consider the following tax issues, both positive and negative, regarding common-law relationships for tax purposes:

• A single parent can claim child care expenses. In a common-law relationship the person with the lower income must claim child care expenses.
• A single parent can claim equivalent to spouse for their child. In a common-law relationship this is not possible.
• A common-law couple can only have one principal residence per family unit. Thus, if each individual owns a residence before union, one of the principal residences could incur tax on capital gains when one of the properties is sold.
• RRSP contributions may be made by one person for the benefit of another in a common-law relationship; the contributor is allowed the tax deduction. The same would not be true for individuals not in a common law relationship contributing to each other’s RRSP.
• When an individual within a common-law relationship dies, for the most part investments and RRSP amounts transfer to the survivor without immediate tax consequences. When an individual dies without a common law survivor, the estate of the deceased is taxable on the value of the RRSP at death.
• Medical expense receipts and charitable donations are creditable to the individual who incurs them. In many instances the expenses and/or donations do not aggregate to a total that is useable by the single taxpayer. Within a common-law relationship such expenditures are transferable from one taxpayer to the other to allow some income tax relief.
• An individual who earns income from investments, whether interest or dividends, must claim 100% of the amount for tax purposes. Assuming that a common-law couple shares the investments, the total income earned could be split between the investors if proper arrangements are made.
• Similarly with capital gains or losses, both taxpayers within a common-law relationship should be able to use the gains or losses to mutual benefit depending, of course, upon other investment gains or losses within their individual portfolios. Individuals within a common-law relationship must be aware that superficial loss rules apply to them as a couple in the same manner as the loss rules apply to an individual. That is, if an investment is sold at a loss to apply against gains but the other spouse repurchases the stock within 30 days of the original sale, the loss would not be permitted.
• If one partner dies while employed, an employer may allocate a $10,000 death benefit to the common-law partner. This amount would be tax free in the hands of the recipient. A tax free benefit is not allowed to others unless the recipient is a child of the deceased.
• In addition to the specific areas covered above there are many other related income tax, goods and services tax, and tax-credit issues (both federally and provincially) that change when individuals decide to live common law.

Consider:

• o The universal child care benefit transfers as taxable income to the spouse with the lowest income.
• o The Canada Child Tax Benefit paid to eligible families for children under 18 will transfer to the individual that is primarily responsible for maintaining care of the child. Thus, individuals with a child who earn less than $40,726 will receive $100 of non-taxable income. Live common law and have a combined income in excess of $40,726 and the non-taxable benefit will be reduced by 2% for one child and 4% for two or more children for net family income exceeding the $40,726.
• o Individuals who receive the GST amount because they fall below an earnings threshold may find the amount starts to diminish when their combined family income is greater than the individual threshold.
• o Similarly the National Child Benefit supplement payable will start to erode as the combined family net income starts to exceed the current threshold of $23,710. By way of explanation:

If each single parent earned $23,710 income individually, they would receive $278 per month on the NCB program. Should the relationship become common law the combined income earned would double to $47,420 and the supplement would drop to $93 per month. (It should be noted that the Province of Alberta provides child benefit supplements that differ from the National program).

An Audit May Change Your Status

There are undoubtedly taxpayers who are living in a conjugal relationship but still file as individuals. Many will receive benefits and tax credits they would not be permitted if their relationship were classified as common law. Taxpayers should be aware that should an audit determine they are living common law, the taxpayers will undoubtedly be required to repay the taxable benefits received because they filed as single. Should the taxpayer decide to object to the audit findings it will be up to the taxpayer(s) to prove that they were not in a common-law relationship.

Know Where You Stand

There are many tax issues associated with living common law versus living separately. There are equally as many legal issues, and most are more expensive than the tax benefits or losses resulting from going from single to common-law status with CRA. Thus, regardless of personal convictions, taxpayers contemplating living together either as a common-law couple or as a support mechanism for each other would be well advised to seek both tax and legal advice as to the best means of avoiding future conflict with each other and with the CRA. n

Noise is everywhere, from that booming of the stereo in the vehicle next to you at the stoplight to the banging from the tube bender on the shop room floor. We accept it as the consequence of living in a modern urban society but studies now suggest workplace noise should be monitored and reduced because it may be affecting employee performance.

 What is sound? What is noise?

Simply stated, sound is everything we hear; noise is unwanted sound. Both sound and noise are created by some vibration that generates variations in air pressure that move through the air and finally reach our ears. The person who hears the sound interprets it as wanted or unwanted. For instance, the sound of a jet engine may be music to the ears of a pilot, but a disruptive noise to owners of residential property on the flight path.

Whether we call these variations in air pressure sound or noise, we will undoubtedly pay a high cost if we do not reduce the sources of noise and protect ourselves from its slow degenerative effect on our hearing.

Types of Noise

A continuous noise is constant and stable, such as the endless hum of fluorescent lights or a diesel generator. Variable noise is any noise that changes pitch and volume such as a siren. Intermittent noise is a burst of sound, such as an electric saw being used for a minute or two every 10 minutes or so at a construction site. Impulsive noise comes in short bursts of less than one second such as a hammer hitting a nail or the sound of a starter’s pistol at a track meet.

The Impact of Noise

The main impact of continuous exposure to noise is either total or partial hearing loss. Noise also interferes with speech communication and leads to misunderstanding of instructions, distracts the mind from work requiring concentration, and causes stress that, in turn, causes employee inefficiency. Research indicates that continuous exposure to noise may lead to hypertension, changes in blood pressure, heart beat, breathing and sleeping problems, and in some instances a deterioration of mental health. When a person is startled by a loud noise, the breathing pattern changes and muscles tense.

Lack of Understanding

To be heard, your voice must be louder than the background noise. In most social situations individuals address each other at a distance of 2 to 4 meters at a 55-60 decibel (db) level. Thus, to hear a person speaking the background noise level reaching the listener’s ear should not exceed 50 db.

Communication is possible for a short time if the noise exceeds 78 db; prolonged communication, however, becomes stressful if the background noise exceeds 78 db.

Measurement of workplace noise compared to quiet life situations shows the day-to-day dangers of hearing loss for employees:

1. A hand-held circular saw at a 1 meter distance generates 115 decibels.
2. A diesel truck, 85 kilometers per hour at 20 meters generates 85 decibels.
3. A gasoline lawnmower at 1 meter generates 95 decibels.
4. An air compressor at 3 meters generates 120 decibels.
5. A normal conversation at 2 to 4 meters generates 55 decibels.
6. A typical office environment without canned music generates approximately 40 decibels.
7. Determining what is “too loud” may seem at first blush somewhat subjective, but a few tell-tale signs that your workplace may have noise issues include:

• Do staff members constantly have to raise their voices to be heard?
• Have any employees complained about a “ringing in their ears” after a long day?
• Do employees raise their voices excessively when on the telephone?

If the noise level seems to be a problem, find the source and duration of the noise, measure its level in decibels, identify the individual(s) exposed, and, of course, find the steps needed to be taken to reduce noise.

Hire a Consultant

Many new techniques, materials and devices are available to reduce noise at the source and protect the ears. A noise abatement consultant can give your workplace a noise abatement analysis. The consultant may suggest making changes to wall configurations and other internal structures, setting up sound barriers, or purchasing new equipment with a lower decibel rating. Unfortunately, carrying out such suggestions may require a major capital injection into the business. Over the long haul, however, it is in management’s best interest to reduce overall noise at its source and protect not only the workers but also ensure that neighbours are not disturbed by high or rising noise levels.

Regardless of when and what structural changes are made, most job sites will still expose workers to noise. Workers should be educated about the long-term hearing loss that will inevitably come if they don’t protect their hearing at all times. As an absolute minimum workers exposed to continuous or sharp intermittent noise should be provided with hearing protection.

Hearing Protection

There are three types of hearing protectors on the market today.

Ear plugs that can be inserted to block the ear canal. They may be preformed or foam ear plugs and are sold as disposable or reusable. Custom molded plugs are also available.

Semi-insert ear plugs are held over the ends of the ear canal by a thin rigid headband.

Ear plugs provide less protection than some ear muffs, and should not be used in areas having noise levels over 105 db. Since they are not as visible as muffs it may be more difficult for supervisors to ensure they are being worn. However, after wearing them on a few jobs, astute workers will soon understand the benefits of a worksite policy requiring hearing protection as they will feel less fatigued and irritable after a day of noise exposure. Naturally plugs must be inserted properly to provide protection.

To fit the ear plug the ear should be pulled outward and upward with the opposite hand to enlarge and straighten the ear canal. Clean your hands before inserting ear plugs and wash or replace them on a daily basis to avoid ear infections.

Ear muffs are made of sound-attenuating material formed into soft ear-cushions in a hard outer cup. A thick slightly flexible head band holds each cup in a tight seal over the ear. Quality ear muffs will provide greater protection than earplugs.

When purchasing ear muffs look for a dome deep enough to cover your ears. The deeper and heavier the dome, the greater the low-frequency attenuation. Although awkward to wear in some situations, they are generally easier to fit and last longer than plugs. They are, however more expensive and, in hot work areas an be less comfortable than simple plugs.

In areas where the noise level is high, ear plugs and earmuffs may be worn together.

Wear Them on the Job…Always

Hearing protection, whether plugs or muffs must be worn at all times to avoid hearing deterioration over the long term. Studies have shown that during an eight-hour shift if an individual removes hearing protection for 40 minutes, rather than receiving the equivalent of protection equal to 30 decibels, the protection equivalent drops to 10 decibels.

Senior management, Human Resources and line managers should work together to reduce the long-term impact of noise on employees’ hearing. Management should contact the agency responsible for occupation health and safety within their province to ensure workplace standards are up to date and get educational literature to provide to employees. n

H ave you ever wondered how people can talk to friends and business associates around the world for long periods of time without paying long-distance?

This is possible through the magic of the Internet and something called Skype, an application-based service that uses a proprietary Internet telephony (voice over IP, or VoIP) network. What separates Skype from VoIP is that Skype operates on a peer-to-peer “cloud” architecture, rather than the traditional server-client model.

The Skype user directory is decentralized and distributed among the nodes within the network thereby reducing the need for a centralized infrastructure. Decentralization allows for network expansion and contraction while reducing the associated costs. It is presently estimated there are more than 240 million users worldwide. The application is currently available in 28 languages.

Skype or similar communication software is destined to become as much part of our everyday lexicon as Windows, Coke, Big Mac or WiFi. Why is Skype gaining in popularity?

What You Get

Take a look at the following features and see how many would be right for your business.

1. Downloading the Skype application software and registering for an account is absolutely free.
2. The software works on a wide variety of platforms. In addition to running on the big three operating systems: Windows, Mac OS, and Linux, it also runs on Windows Mobile devices, dedicated WiFi phones, some mobile and cordless phones, and other devices.
3. Communication requires a broadband Internet connection, microphone or headset and a webcam if you wish to make video calls.
4. The software permits easy, wizard-guided import of all your contacts on Outlook or Entourage into the Skype directory.
5. Skype has a built in system for identifying all callers, blocking the unknowns and those you do not want to speak with, and has notification options to alert you to file receipt, messages left or contacts made. Skype acts somewhat like a receptionist, letting those who call know that you are offline, online, available for contact, away, not available, or do not wish to be disturbed.
6. Send files of any size. There are no restrictions on the size of the document, digital photo or video.
   That large spread sheet or lengthy proposal you need for a meeting can be sent while you are talking.
7. The ability to talk to your clients and suppliers “face to face” wherever they are in the world can not only help build better relationships but also will reduce travel expenses and environmental impact.
8. Replace traditional expensive video conferencing services and hardware. Skype works with equipment you already have and can be made available to all your employees rather than just a privileged few. You will be able to have a video conference with your remote offices without even leaving your desk.
9. Free conference calls with contacts and other offices whether the people are using landlines or cell phones. Urgent meetings can be called regardless of the location of your employees or offices and regardless of their communication devices.

10.  A modestly priced assigned access number enables you to make unlimited landline and cell phone calls to the US and Canada — any time of the day, any day of the week.

11.  A business version of Skype available for Windows allows IT departments to deploy the application easily to specific groups or across the organization.

Controlling Costs

Businesses wanting to use Skype as an internal communications network may find that establishing cost controls for long distance to countries outside the United States and Canada plus the cost of land-line or cellular telephones is an issue.

Skype provides the free web-based Business Control Panel to manage use within your organization. The manager or administrator of the cost centre can prepay for the use of Skype, assign control numbers to each participant, and allocate credits from the prepaid amount to various participants. Reports of usage can then be used by administrators to determine cost by department or to control the expenditures. To ensure users do not run out of credits the system can be preset to assign more credits automatically to a user if they fall below a certain level.

Skype May Not be for Everyone

As your business extends the use of a proprietary system such as Skype there will be costs over and above the “free.” However, for small businesses, consultants and other members of our business community who wish to stay in touch with employees, branches, clients and suppliers in a more personal and visible way, Skype may be a reasonably priced solution. 

This is possible through the magic of the Internet and something called Skype, an application-based service that uses a proprietary Internet telephony (voice over IP, or VoIP) network. What separates Skype from VoIP is that Skype operates on a peer-to-peer “cloud” architecture, rather than the traditional server-client model.

The Skype user directory is decentralized and distributed among the nodes within the network thereby reducing the need for a centralized infrastructure. Decentralization allows for network expansion and contraction while reducing the associated costs. It is presently estimated there are more than 240 million users worldwide. The application is currently available in 28 languages.

Skype or similar communication software is destined to become as much part of our everyday lexicon as Windows, Coke, Big Mac or WiFi. Why is Skype gaining in popularity?

What You Get

Take a look at the following features and see how many would be right for your business.

1.     Downloading the Skype application software and registering for an account is absolutely free.

2.     The software works on a wide variety of platforms. In addition to running on the big three operating systems: Windows, Mac OS, and Linux, it also runs on Windows Mobile devices, dedicated WiFi phones, some mobile and cordless phones, and other devices.

3.     Communication requires a broadband Internet connection, microphone or headset and a webcam if you wish to make video calls.

4.     The software permits easy, wizard-guided import of all your contacts on Outlook or Entourage into the Skype directory.

5.     Skype has a built in system for identifying all callers, blocking the unknowns and those you do not want to speak with, and has notification options to alert you to file receipt, messages left or contacts made. Skype acts somewhat like a receptionist, letting those who call know that you are offline, online, available for contact, away, not available, or do not wish to be disturbed.

6.     Send files of any size. There are no restrictions on the size of the document, digital photo or video.
That large spread sheet or lengthy proposal you need for a meeting can be sent while you are talking.

7.     The ability to talk to your clients and suppliers “face to face” wherever they are in the world can not only help build better relationships but also will reduce travel expenses and environmental impact.

8.     Replace traditional expensive video conferencing services and hardware. Skype works with equipment you already have and can be made available to all your employees rather than just a privileged few. You will be able to have a video conference with your remote offices without even leaving your desk.

9.     Free conference calls with contacts and other offices whether the people are using landlines or cell phones. Urgent meetings can be called regardless of the location of your employees or offices and regardless of their communication devices.

 10.  A modestly priced assigned access number enables you to make unlimited landline and cell phone calls to the US and Canada — any time of the day, any day of the week.

11.  A business version of Skype available for Windows allows IT departments to deploy the application easily to specific groups or across the organization.

Controlling Costs

Businesses wanting to use Skype as an internal communications network may find that establishing cost controls for long distance to countries outside the United States and Canada plus the cost of land-line or cellular telephones is an issue.

Skype provides the free web-based Business Control Panel to manage use within your organization. The manager or administrator of the cost centre can prepay for the use of Skype, assign control numbers to each participant, and allocate credits from the prepaid amount to various participants. Reports of usage can then be used by administrators to determine cost by department or to control the expenditures. To ensure users do not run out of credits the system can be preset to assign more credits automatically to a user if they fall below a certain level.

Each year taxpayers pay money in taxes that would not have been paid if information had been available for inclusion in their T1. Most of us receive T4s and T5s from the source; however, we often overlook the multiplicity of transaction documents that impact our personal income taxes. Here are the more common omissions that your tax preparer encounters.

1. RRSP

RRSP deduction limits should be reviewed to minimize the possibility of overcontribution. It may be useful to review your bank statements, etc., to ensure that neither you nor your broker has forgotten RRSP contributions. Under normal circumstances, your broker will ensure that the RRSP receipts are sent, but it is not unusual for these receipts to arrive late or be misplaced.

2. Loan Interest

Loan interest incurred when borrowing for investment purposes is tax deductible. Documentation outlining the date of the loan, the principal and interest, and the term should be available to allow preparation of an amortization table. Many financial institutes provide summaries of interest on loans or lines of credit. Providing this documentation along with an explanation of the reason for the loan or line of credit will allow your tax advisor to determine whether the interest is tax deductible.

3. Investments

Information on carrying costs, such as brokerage, administration fees, and capital gains and losses in your portfolio is definitely necessary for tax preparation. The original cost of investments purchased many years ago may be difficult to determine. Where possible, find the original purchase details; but, if this is not possible, determine an approximate purchase time to allow research into the cost at that time.

4. Moving Expenses

Expenses associated with a move to a new residence at least 40 kilometers closer to a new work location may be deductible. Such expenses include, but are not limited to, travel costs, moving costs, and real estate fees. If in doubt about the deductibility of moving expenses, provide all of them to your tax advisor. The inclusion of receipts allows your advisor to determine not only those expenses that are deductible but also will provide a starting point for questions about possible additional deductions.

5. Rental Property

Individual taxpayers who own rental property should summarize income from tenants as well as all associated expenses. Reviewing last year’s tax return will remind you of necessary information. Be sure to provide your tax advisor with high-dollar-value receipts that detail just what was purchased. Your tax advisor can then provide guidance as to which expenditures were capital in nature and which may be perceived as personal. This step could prevent future tax squabbles with the Canada Revenue Agency.

6. Students

Receipts for tuition fees may be deductible and, therefore should be retained because they provide the required information that forms the basis for the education and textbook amount. If the student’s income is insufficient to make use of all the available deductions, the unused portion up to $5,000 may be transferred to a parent, grandparent or spouse (or the parent or grandparent of the student’s spouse or common-law partner).

Full-time students who must move to attend an educational facility should keep a record of all moving expenses. Deductions are available for moving expenses incurred at the beginning of each academic period provided the move is more than 40 kilometres closer to the post-secondary institution. The costs of moving back after the summer break might be deducted as well.

7. Installment Payments

Tax installment receipts should be kept available. If paid at a financial institution give them to your tax advisor. Providing proof of payment to your advisor will reduce the chances of overpayment and the subsequent difficulty of obtaining a refund of the overpayment. The CRA may inadvertently apply overpayments to the GST account of self-employed individuals thus adding to the refund confusion.

8. Medical Expenses

Retain receipts for all medical expenses. Low income individuals who require attendant care in a private facility may be able to deduct some of these costs. If you are self-employed and purchased a private health services plan from a third party, the premium is deductible as long as equivalent coverage is available to permanent full-time and arm’s-length employees. Self-employed individuals and their spouses can each deduct up to $1,500 plus $750 for each child. Should this option be used, however, the business cannot deduct medical premium costs. Out-of-country medical expenses are deductible as well as premiums paid to private insurers within the United States for medical and health care coverage.

9. Charitable Donations

To be deductible against taxable income, donation claims must be supported by receipts from a registered charity. You may carry forward and claim for up to five years any donations not claimed in a previous year.

Taxpayers can expand their donations beyond the accepted religious organizations and local charities to include registered Canadian amateur athletic associations; prescribed universities outside Canada; certain tax-free housing organizations in Canada; Canadian municipalities; the United Nations (or its agencies); or charities outside Canada to which the Government of Canada has made a donation.

Generally you may claim donations to US charitable organizations as long as they do not exceed 75% of your US income.

10. Income and Eligible Deductions

It is the taxpayer’s responsibility to report income from all sources and provide documentation supporting claims for deductible expenses. Most taxpayers rely on employers to provide the appropriate T4s or T4As for employment information, financial institutions for T3s and T5s, unions to send the appropriate slips and various other third parties, such as child care facilities, to send detailed or summary statements. Taxpayers should maintain all documents pertaining to employment and investments received during the year; during January and February they should take time not only to ensure the aggregate of detail agrees with the summaries received but also to determine whether all information is complete.

Ensuring that taxes are minimized is every taxpayer’s right and responsibility. Why not use the 10 areas mentioned above as a starting point to review any 2008 financial transactions that may impact your tax filing?
If you realize that you missed deductions in earlier years, you can ask the CRA to adjust returns filed for the 10 preceding years.

An early review may save you hundreds, if not thousands of dollars.