Ok cool. So I can use the common grounds from the different supplies, only because the Arduino has the regulator? If I had an "unprotected" circuit I wouldn't be able to do it?
Let's assume I'm not using the Arduino... and if my assumption above is incorrect....
The way I see it is... 5V comes from supply1, which goes to the transistor to switch the 12V from supply2. The (-) from supply1 goes into ground at 5V, and the (-) from the 12V goes into the same ground. which means I'm putting the 12V into the 5V circuit. And this would be bad?