22 January 2013 External T.I. 2012-0445401E5 - Eligible Dependent – Support by Court Order

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Does a father who is required to pay child support able to claim the eligible dependent, even when the court order so indicates?

Position: No

Reasons: Legislation & Court positions

XXXXXXXXXX
2012-044540
George A. Robertson, CMA

January 22, 2013

Dear XXXXXXXXXX:

Re: Eligible Dependent Credit (EDC)

This is in response to your April 23, 2012 request on our views on the EDC. The facts provided by you are that your court order says that you must pay child support for your son and you can claim the EDC on your tax return. You have been informed by the Canada Revenue Agency (CRA) that according to the Income Tax Act, a taxpayer cannot claim the amount for an eligible dependent if that individual is paying child support for the same dependent. Your argument is that it is not fair that neither you nor your former spouse can ask for the credit.

Written confirmations of the tax implications inherent in particular transactions are provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at www.cra-arc.gc.ca/formspubs/menu-e.html. Notwithstanding the foregoing, we are prepared to provide the following comments that may be of assistance.

Paragraph 39 of Income Tax Interpretation Bulletin 513R Personal Tax Credits states;

Because of subsection 118(5) of the Act, an individual cannot claim a personal tax credit in respect of the individual's spouse or a child for a taxation year after 1996 if the individual is required to pay a support amount (see below) to his or her spouse or former spouse for that person, and the individual lives separate and apart from the spouse or former spouse throughout the year because of the breakdown of their marriage. This rule applies whether or not the individual makes the support payments or gets a deduction for them. …

For this purpose, a support amount is generally an amount payable, under an order of a competent tribunal or a written agreement …

Where an individual is required to pay child support in respect of a person within the meaning assigned by subsection 56.1(4) of the Act, subsection 118(5) of the Act generally restricts the payor from claiming the EDC in respect of that person. Prior to the 2007 taxation year, where both parents paid child support in respect of a child, neither parent could claim the EDC for that child.

New subsection 118(5.1) of the Act was introduced, effective with the 2007 taxation year, to eliminate that restriction when both parents are required to pay child support in respect of the same child. The amendment ensures that in cases where both parents had an obligation to pay a child support amount in respect of the same child, one parent could claim the EDC in respect of that child, providing all other conditions were met.

It is a question of fact as to whether the agreement or court order imposes a legally enforceable obligation on both parents to pay child support. Where a written agreement or court order requires both parents to make child support payments and both parents make actual payments (e.g. cheque, bank or maintenance enforcement programs), then supporting documents are generally available to substantiate the individual's eligibility for the exception provided under subsection 118(5.1) of the Act.

In circumstances where the parties utilize a "set-off" arrangement such that only one parent makes a child support payment for the difference, then the eligibility for the exception could still apply providing the supporting documentation and the facts provided by the individuals in question support the existence of that arrangement. However, in our view, an agreement which calculates child support obligations with reference to a statutory scheme such as the federal Child Support Guidelines which does not obligate both parties to pay child support does not meet the requirement of a legally enforceable obligation on the recipient. In this case, the payer is not entitled to claim the EDC. [Emphasis added]

Assuming both parents otherwise meet all the conditions for claiming the EDC in respect of a child, paragraph 118(4)(b) of the Act requires the parents to agree as to whom will claim the amount for the child. If the parents cannot agree, neither parent will be allowed to make the claim. Paragraph 118(4)(b) of the Act also restricts the EDC claim to one per the same domestic establishment.

Three Tax Court of Canada (TCC) cases: 2008/11/28 - (TCC) Scott v The Queen, 2008/06/12 - (TCC) Cornelius v The Queen, and 2010/06/17 - (TCC) Perrin v The Queen, 2010 TCC 331; 2010 DTC 1222 are applicable to the described situation. Copies are attached for your convenience.

While we trust that these comments will be of assistance, they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R5 and are not binding on the CRA in respect of any particular situation.

Yours truly,

Sharmini Ratnasingham
for Director
Business & Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch