CRA indicates that a blood relative may be entitled to a s. 118(1)(b) deduction for a child even though the two parents are paying and receiving support respecting the child

The deduction under s. 118(1)(b) for a wholly-dependant person is not available where the claimant supported (or lived with) a spouse or common-law partner. CRA indicated that this denial would continue to apply where the person paying support (Taxpayer B) to the ex-spouse (Taxpayer A) was actually supporting the minor child in question if the court order requiring the payment of support to Taxpayer A was not amended accordingly. However, if the child starts living on a wholly-dependant basis with Taxpayer C, who is a blood relative of Taxpayer B, the credit generally could be available to Taxpayer C, so that it is now irrelevant that the support obligations of Taxpayer B to Taxpayer A have not been altered by court order.

Neal Armstrong. Summary of 6 August 2019 Internal T.I. 2018-0785701I7 under s. 118(1)(b).