REASONS
FOR JUDGMENT
C. Miller J.
[1]
Mr. Ochitwa appeals, by way of the informal
procedure, the Minister of National Revenue’s (the “Minister”)
assessment of his 2011 taxation year. The Minister denied Mr. Ochitwa the
Wholly Dependent Amount (paragraph 118(1)(b) of the Income Tax
Act (the “Act”)) and the Child Amount (paragraph
118(1)(b.1) of the Act) on the basis that, because
Mr. Ochitwa was required to pay a support amount, he is precluded from
claiming such deductions pursuant to the application of subsection 118(5) of
the Act.
[2]
The facts can be briefly stated. Mr. Ochitwa and
his wife separated in 2003. They had two children, both minors. They entered a
shared custody arrangement and also obtained an order from the Alberta Court of
Queen’s Bench, pronounced January 11, 2011 that stipulated:
AND WHEREAS the
plaintiff’s guideline income for 2010 is estimated to be $80,000 and the
defendant’s guideline income for 2010 is estimated to be $120,000…IT IS HEREBY
ORDERED;
1.
that the defendant shall pay child support to
the plaintiff in the amount of $549 per month commencing January 1, 2011 and on
the first day of each month thereafter until further Order of the Court or
until such time as the child ceases to be a child as defined by the Divorce
Act.
[3]
As Mr. Ochitwa explained, and as confirmed in
correspondence from his solicitor, the support amount was based on an offset of
the two incomes following the Simplified Federal Child Support Tables for the Province of Alberta, based on support for two children (the difference of $40,000 being
the amount by which Mr. Ochitwa’s income exceeded that of his former spouse).
Mr. Ochitwa suggested that the support amount to be paid would fluctuate
depending on incomes, such that if his ex-wife’s exceeded his, it would be her
responsibility to make the support payment. As is clear from the wording of the
order this could only be upon issuance of a subsequent order.
[4]
The pertinent provisions of the Act are
the following:
118(1)(b) in the case of an individual who does not
claim a deduction for the year because of paragraph 118(1)(a) and who,
at any time in the year,
(i) is
(A) a person who is unmarried and who does not live in a
common-law partnership, or
(B) a person who is married or in a common-law partnership,
who neither supported nor lived with their spouse or common law-partner and who
is not supported by that spouse or common-law partner, and
(ii) whether alone or jointly with one or more other persons,
maintains a self-contained domestic establishment (in which the individual
lives) and actually supports in that establishment a person who, at that time,
is
(A) except in the case of a child of the individual, resident
in Canada,
(B) wholly dependent for support on the individual, or the
individual and the other person or persons, as the case may be,
(C) related
to the individual, and
(D) except in the case of a parent or grandparent of the
individual, either under 18 years of age or so dependent by reason of mental or
physical infirmity,
an
amount equal to the total of …
…
(5) No amount may be deducted under subsection (1) in
computing an individual’s tax payable under this Part for a taxation year in
respect of a person where the individual is required to pay a support amount
(within the meaning assigned by subsection 56.1(4)) to the individual’s spouse
or common-law partner or former spouse or common-law partner in respect of the
person and the individual
(a) lives separate and apart from the spouse or common-law
partner or former spouse or common-law partner throughout the year because of
the breakdown of their marriage or common-law partnership; or
(b) claims a deduction for the year because of section 60 in
respect of a support amount paid to the spouse or common-law partner or former
spouse or common-law partner.
(5.1) Where, if this Act were read without reference to this
subsection, solely because of the application of subsection (5), no individual
is entitled to a deduction under paragraph (b) or (b.1) of the description of B
in subsection (1) for a taxation year in respect of a child, subsection (5)
shall not apply in respect of that child for that taxation year.
[5]
Mr. Ochitwa, while recognizing the effect of
subsection 118(5) of the Act was to preclude someone from obtaining the
subsection 118(1) of the Act deductions if he or she was obligated to
make support amounts, he questions the appropriate application of this
provision in shared custody arrangements where there is more than one child,
and where payments are determined on an offset basis. Had Mr. Ochitwa’s support
payment been for only one child, I might accept his argument. In the
circumstances, however, I cannot.
[6]
Mr. Ochitwa brought to my attention an
excerpt from the Canada Revenue Agency (the “CRA”)
website, entitled “Shared custody and the amount for an
eligible dependent”, specifically examples 2 and 3. They read as follows:
Example 2
Nicholas and
Christine share the custody of their children Sam and Amy. Sam and Amy spend
50% of their time with Nicholas and 50% of their time with Christine. The
written agreement states that Nicholas has to pay Christine $300 a month and
that Christine has to pay Nicholas $400 a month. For convenience, Christine
agrees that Nicholas does not have to write her a monthly cheque and that she
will simply pay him $100 a month, which will fulfill both their support
obligations.
Nicholas will claim
the amount for an eligible dependent on line 305 of his income tax and benefit
return for Sam. Christine will claim the amount for an eligible dependant on
line 305 of her income tax and benefit return for Amy.
Example 3
William and Julie
share custody of their children, Emily and Eric. Emily and Eric spend 50% of their
time with William and 50% of their time with Julie. Based on William’s and
Julie’s incomes, the court order states that William has to pay Julie $250 a
month according to The Federal Child Support Guidelines. The amount
William pays is considered a support payment. Therefore, William is not
entitled to a claim on line 305 for either Emily or Eric. However, Julie can
claim an amount for an eligible dependant on line 305 of her income tax and
benefit return for Emily and Eric.
[7]
Mr. Ochitwa questioned why in one shared custody
arrangement both parents appear able to obtain the paragraph 118(1)(b)
of the Act deduction, yet not able to do so in the other shared custody
arrangement. The Respondent, in answer to my query in this regard, wrote as
follows:
The Minister of
National Revenue confirms that in her view both parents are permitted to make a
paragraph 118(1)(b) deduction in example 2, while on Julie is permitted
to a paragraph 118(1)(b) deduction in example 3.
In example 2, both
parents have a legal obligation to pay child support for their two children
under the terms of the written agreement. They may therefore come to an
agreement that allows each of them to claim the paragraph 118(1)(b)
credit for one of their children, as provided for by subsection 118(5.1).
In example 3, only
William has a legal obligation to pay child support for his children under the
terms of the court order. Subsection 118(5) prevents him from claiming the
paragraph 118(1)(b) credit for either child.
[8]
While I cannot disagree with the Respondent’s
conclusions, I am perturbed by the implications that in the same circumstances of
a shared custody arrangement, that simply due to the crafting of an order or
agreement a parent will or will not get the eligible dependant amount. For
example, where there is a shared custody arrangement with two children it
strikes me there are three possible ways to craft the child support, where each
parent earns some income:
1.
Each parent agrees to or is ordered to pay
support for one child ($400 for one for example and $300 for the other – net
$100.00): both could claim the eligible dependant amount.
2.
As in example 2 above, both parents agree or are
ordered to pay support for both children (one pays $300 for example and one
pays $400 – net $100.00: both can rely on subsection 118(5.1) of the Act
kicking out the effect of subsection 118(5) of the Act).
3.
As Mr. Ochitwa did, the higher earning parent is
obligated to pay support for both children (net $100.00: no eligible dependant
amount would be allowed).
[9]
So, same shared custody arrangement, same fiscal
effect, but different result. This is unfortunate. Why should each parent
(where both parents earn income), in a two or more child shared custody
arrangement of at least two children, not be able to claim the eligible dependant
amount – one child each? I suggest these provisions could be clarified to
more clearly ensure the policy objectives are being met, presumably for the
benefit of the children.
[10]
Ms. Softley, Respondent’s counsel, suggested the
case of Marc Verones v Her Majesty the Queen, recently issued by the Federal
Court of Appeal, is a complete answer to this case. It too involved a shared
custody arrangement and an order representing a setoff of the amount the
appellant in that case was required to contribute to the childrens’ needs
versus the amount the former spouse was required to contribute in accordance
with the Federal Child Support Guidelines. The court found that:
The whole discussion
about the concept of setoff is a mere distraction from the real issue, ie.
whether or not the appellant is the only parent making the “child support payment” in virtue of “an order of a competent tribunal or an agreement”, as
defined under the Act.
…
… the setoff concept
does not translate the parents’ respective obligation to contribute to child
rearing into a “support payment” as defined in the
Act.
[11]
I agree that the offset is just a means of
determining who is required to make the payment: it is not an obligation of two
support payments going both ways, but as I illustrated earlier, it could
readily have been drafted to be otherwise.
[12]
The result I feel bound to reach is that
subsection 118(5) of the Act precludes someone such as Mr. Ochitwa from
the eligible dependant amount. Regrettably this appears to defeat the purpose
of the eligible dependant amount to benefit the children, where in fact there
is more than one child. In such a shared custody arrangement, what rationale
precludes two paragraph 118(1)(b) of the Act deductions, thus
leaving more money available for the benefit of the children. It appears two
children do not get the same benefit as one.
[13]
It is not difficult to sense Mr. Ochitwa’s
frustration with the legislative scheme and perhaps how it might be
manipulated. Unfortunately for Mr. Ochitwa he may well have some legitimate
questions regarding the legislative policy underlying these provisions, but
that is a matter for the legislators. Under the law, as written, to qualify for
the Wholly Dependent Amount pursuant to paragraph 118(1)(b) of the Act
the following criteria must be met:
1.
At any time in the year the child must be wholly
dependent on Mr. Ochitwa (clause 118(1)(b)(ii)(B) of the Act).
2.
Mr. Ochitwa is not required to pay support in
respect of that child.
[14]
When either or both of the children stayed with
Mr. Ochitwa, I am satisfied they were at that time wholly dependent on him. He
meets the first criteria. With respect to the second criteria, the evidence was
that Mr. Ochitwa’s support was based on support for both children. As he
was required to pay support in respect of both of the children he fails to meet
the second condition. He is not saved by the application of subsection 118(5.1)
of the Act as the Court order does not impose a legal obligation on his
former spouse to make any support payments.
[15]
I must dismiss Mr. Ochitwa’s Appeal.
Signed at Toronto, Ontario, this 2nd day of September 2014.
“Campbell J. Miller”
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