24 September 2012 External T.I. 2012-0461521E5 - Adoption in fact and extended meaning of child

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: 1- Whether a person has been adopted in fact and is "wholly dependent" under paragraph 118(1)(b). 2- Whether a person is a child under the extended meaning of "child".

Position: 1- Question of fact. General comments provided. 2- Question of fact. General comments provided.

Reasons: 1- Question of fact as to whether there has been a de facto adoption. Question of fact whether the person is “wholly dependent” under paragraph 118(1)(b). 2- Paragraph 252(1)(b) requires the person to be “wholly dependent on the taxpayer for support” and for the taxpayer to have “custody and control” of the person. Both requirements are questions of fact.

XXXXXXXXXX
2012-046152
Chrys Tzortzis, CA

September 24, 2012

Dear XXXXXXXXXX:

Re: Adoption in Fact and Extended Meaning of “Child”

This is in response to your undated letter which we received on September 7, 2012.

In your letter, you are inquiring whether a particular individual would be considered your adopted child on the basis of an “adoption in fact”. Your inquiry is being made in the context of a desired transfer of the disability tax credit to you. You state that the particular individual is an adult who lives with you and who is entitled to the disability tax credit but who does not have sufficient income to fully utilize the disability tax credit. You also indicate that you are not the legal or natural parent of the particular individual.

Written confirmation of the tax consequences that apply to a particular fact situation is given by this Directorate only in the context of an advanced income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency publications can be accessed on the CRA Web site at www.cra-arc.gc.ca. However, we are prepared to provide the following general comments, which may be of assistance.

Our Comments

In order for a person to transfer his or her unused disability tax credit to an individual, amongst other conditions that must be met, the individual must be entitled to claim (or could have claimed but for certain specific restrictions), in respect of that person, either the wholly dependent person credit (also commonly known as the equivalent-to-spouse credit), the caregiver credit, or the infirm dependant credit. As each of these credits requires further conditions to be met, we have narrowed the discussion to two possible scenarios that may be applicable.

Adoption in Fact

If all other conditions are met, a person may transfer his or her unused disability tax credit to an individual if it is determined that the individual has adopted, either legally or in fact, that person as their child and the person is, at any time in the year, wholly dependent for support on the individual or the individual and other persons, as the case may be, who maintain the self-contained domestic establishment in which the person lives.

The CRA’s general views regarding adoption are contained in Interpretation Bulletin IT-419R2, Meaning of Arm’s Length. Specifically, in paragraph 10, the bulletin states that adoption includes a legal adoption and an adoption in fact. Whether a factual adoption has occurred at a particular time is a question of fact and has to be determined based on a consideration of the particular circumstances. The fact that an individual is appointed guardian of a person does not, in and of itself, constitute adoption in fact. For a de facto adoption to exist, generally, the "adoptive" parent must exercise parental care and guidance on a continuing basis. The factors to consider in determining whether a certain relationship between an individual person and a child constitutes an adoption in fact are actual control and custody, an exercise of parental care and responsibility on a continuing basis, dependency, and proximity to each other. It is our view that occupying the same residence may be a factor in support of adoption in fact, but it is not determinative, by itself, of a finding that such a relationship exists.

The word "support" is not specifically defined for income tax purposes and, therefore, takes its ordinary meaning. In general terms, support involves the provision of the basic necessities of life such as food, shelter, and clothing. Support is generally something that is given voluntarily but includes support under a legal commitment. Whether or not an individual supports another individual is a question of fact. For example, if an individual contributes amounts to a household, and such amounts can be regarded as being for the individual's own accommodation and meals, they should not be considered to have been paid by the individual for the support of another person in the household.

In our view, it is a question of fact as to whether a person is wholly dependent on another for support in a particular case. It is possible in certain circumstances that a person might be considered wholly dependent notwithstanding that he or she had income. However, where the income is significant and received steadily throughout the year, it may be indicative that the person is not wholly dependent on another individual for support. Similarly, in our view, support provided wholly or in part by an agency to a person may indicate that the person is not wholly dependent on another individual for support.

Extended Meaning of Child

If all other conditions are met, a person may transfer his or her unused disability tax credit to an individual if the person is the individual’s child. A person may be considered the child of an individual under the extended meaning of child found in the Income Tax Act. Under this extended meaning, a child of an individual includes a person who is wholly dependent on the individual for support and of whom the individual has, or immediately before the person attained the age of 19 years had, in law or in fact, the custody and control of the person.

In order for a person to be considered wholly dependent on an individual for support under the extended meaning of child, generally, the person must be financially dependent on the individual such that the individual provides almost entirely for the person’s well- being.

The second requirement is that the individual has, or immediately before the person attained the age of 19 years had, in law or in fact, the custody and control of the person. It is a question of fact whether an individual has the custody and control of a person. In general terms, custody and control involve the right of determining the residence, protection, care (physical and moral), education, and religion of the child. It also requires that the child submit to parental control.

If an individual were to legally adopt a person, then that person would be considered the individual’s child under the Income Tax Act because the individual would then be the person’s legal parent.

In conclusion, we are unable to provide you with a definitive response to your enquiry given the limited information provided in your letter. Further, whether a factual adoption has occurred at a particular time is a question of fact and the determination can only be made after a review of all the facts of a particular situation. However, we trust that the above comments will be of assistance.

Yours truly,

G. Moore
for Director
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch