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: Clarification of the eligibility to claim the EDC in alternating years where both parties may be paying a support amount.
Position: It is a question of fact.
Reasons: There must be a court order or a written agreement in place signed by both parties, obligating both parties to pay an amount to the other. The supporting documentation and the facts provided must support the existence of that arrangement. Both parties must agree to who will claim the EDC or neither party can make the claim.
XXXXXXXXXX
2013-050209
Eric Wirag, CPA, CMA
(613) 957-2090
June 19, 2014
Dear XXXXXXXXXX,
This is in reply to your letter of August 19, 2013, in which you asked for our comments about claiming the eligible dependant credit in paragraph 118(1)(b) of the Income Tax Act (the "Act"). In your letter, you state that you and your ex-common law partner share custody of your child. You have asked whether each of you can claim the eligible dependant credit for your child in alternating years if there is a separation agreement signed by both yourself and your ex-common law partner that states that each of you will pay the other an amount in respect of the child. As a result, you will pay the net amount to him based on your requirement to pay the larger amount.
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
Generally, if an individual is required to pay a support amount (within the meaning assigned by subsection 56.1(4) of the Act) to a current or former spouse or common-law partner in respect of a particular person, subsection 118(5) of the Act prevents the individual from claiming a personal tax credit under subsection 118(1) of the Act for that particular person. The eligible dependant credit is included under subsection 118(1).
However, subsection 118(5.1) of the Act allows one individual to claim the eligible dependant credit, providing they otherwise qualify, when both parents pay a support amount in respect of the same child, and both individuals agree on who will claim the credit. If the parties cannot agree who will claim the credit for the child, paragraph 118(4)(b) of the Act prevents either individual from making a claim.
It is a question of fact as to whether a written agreement or court order imposes a legally enforceable obligation on both parents to pay a support amount. When a written agreement or court order requires both parents to pay a child support amount in respect of a child and both parents make actual payments (e.g. cheque, bank or maintenance enforcement programs), then documents are generally available to provide evidence that subsection 118(5.1) of the Act would apply.
Additionally, when a written agreement or court order requires that both parents pay a child support amount but the parents agree (outside of the court order or written agreement) to use a "set-off" arrangement such that only one parent makes a payment for the difference, subsection 118(5.1) of the Act could still apply. The supporting documentation and the facts provided by the individuals in question must support the existence of the legal obligation of both individuals to pay a child support amount. However, where the written agreement or court order states that only one individual will make a payment, even if that payment is for the difference in support amounts, it is unlikely that both parents would be considered to be required to pay a support amount, and subsection 118(5.1) would not apply.
An agreement that calculates child support obligations with reference to a statutory scheme such as the Federal Child Support Guidelines, and that does not require both parties to pay a child support amount, does not meet the requirements of subsection 118(5.1). The income of both parties is taken into consideration in determining the amount that one individual is required to pay, but both parties are not legally obligated to pay a support amount.
We trust our comments will be of assistance.
Yours truly,
Pamela Burnley, CPA, CA
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
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