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| If separated parents share custody of their children, can they both claim the Dependent Tax Credit under the Income Tax Act ? |
This would make sense. Since the children are economically dependent on both their parents and since Canada Revenue Agency recognizes the financial burden of providing for dependents, it is reasonable to expect that each parent supporting their children may claim this tax credit and enjoy the same benefits.
Well, that is not what the Tax Court of Canada judges have concluded. In Haynes v. The Queen 2013 TCC 84 (Canlii), Madam Justice Miller was presented with an appeal by a father who had signed a Consent Order with his former spouse that child support was payable “pursuant to the straight ‘set-off’ approach” in the Federal Child Support Guidelines. He was required to pay child support in the amount of $410.25 per month that was based on a set-off between the amount he was required to pay ($783) and the amount his former spouse was required to pay him ($372.75). When he filed his tax return, Canada Revenue Agency disallowed the claim on the basis that subsection 118(5) of the Income Tax Act (“the Act”) prevented him from receiving the credit.
Paragraph 118(1)(b) of the Act allows a tax credit in respect of a wholly dependent person. Subsection 118(5) of the Act provides that an individual may not claim a tax credit for a wholly dependent person where that individual is required to pay a support amount to his or her former spouse. Subsection 118(5.1) of the Act provides that subsection 118(5) does not apply if it would deny the credit to both parents. In such a case, paragraph 118(4)(b) would apply and the parents must agree which of them will claim the credit on an annual basis. If there is no agreement, neither of the parents will be allowed the credit for the year.
The father claimed that the children are dependents of each parent, that each parent is paying child support to the other, that each parent could therefore claim the credit and that Canada Revenue Agency cannot deny both parents the tax credit. That is, the father argued, they should both get the tax credit.
Madam Justice Miller relied on the Federal Court of Appeal ruling in Marc Verones v. The Queen, 2013 FCA 69 (CanLII) and stated:
“I am of the view that the Tax Court correctly rejected the Appellant’s thesis. The Tax Court observed that the Order of the Court of Queen’s Bench of Alberta directed only the Appellant to make child support payments, notwithstanding that his former spouse’s income was taken into consideration in determining the amount that he, as the higher income spouse, was directed to pay. It is clear that the child support payments made by the Appellant constitute a “support amount” as contemplated by subsection 56.1(4) of the Act. The mother’s contribution to the children’s needs does not meet the requirement of that subsection as there is no order or written agreement requiring her to make child support payments to the Appellant. As a result, subsection 118(5) is applicable and the Appellant is not entitled to the tax credits. The whole discussion about the concept of set-off is a mere distraction from the real issue, i.e. whether or not the Appellant is the only parent making a “child support payment” in virtue of “an order of a competent tribunal or an agreement”, as defined under the Act.”
The father in Haynes suggested that this law should be repealed. Madam Justice Miller responded by stating that “it is a matter which only Parliament can address.”
Time will tell if this provision is ultimately corrected by the government. |
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