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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
technical explanation of 1) the reason why one person in a on-going marriage can't claim the equivalent to married tax credit, 2) the basis for the position of allowing the most beneficial personal tax credit in the year of marital change, 3) whether daughter and father can both claim mother & 4) why 118(1)(b)(ii)(A) makes an exception for a non-resident child
Position TAKEN:
1) "not entitled to" means "can't have a deduction" -it is other grounds & the scheme of the Act which prevent a taxpayer from taking a credit under (b) when s/he is married & not separated from spouse
2) it is an administrative position only
3) daughter can't claim mother
4) sojourners and non-residents who earn substantially all their income in Canada can claim equivalent to married for child living with him/her outside of Canada.
Reasons FOR POSITION TAKEN:
4. See 1981 budget. In addition to reasons above, in 1981 a child was only deemed resident under 250(1) if the child was a child described in 109(1)(d). Since 109(1)(d) excludes a child for whom a deduction was taken under 109(1)(b), a technical argument could be made that the exception applies to other deemed residents as well: however, since 250(1)(f) has been amended to correct what might have been a technical deficiency, this argument was not addressed
June 28, 1994
OTTAWA DISTRICT OFFICE HEAD OFFICE
Client Assistance Rulings Directorate
A. Humenuk
Attention: Paul Loshuk 957-8953
940734
Personal Tax Credits
We are replying to your memorandum of March 22, 1994 concerning various questions which have arisen relating to paragraph 118(1)(b) of the Act.
Your first question relates to an amount claimed under paragraph 118(1)(b) of the Act in the year of marital change. In the situation you describe, two individuals married in June 1993. Prior to the marriage, the wife was the sole supporting person of an individual and meets the criteria described in subparagraphs 118(1)(b)(i) and (ii) of the Act in respect of that individual for the year of marriage. You ask whether the wife is precluded from making a claim for that individual under paragraph 118(1)(b) of the Act for 1993 because of her marital status at the end of the taxation year. You ask whether the phrase "... an individual not entitled to a deduction by reason of paragraph (a)..." means an individual who is unable to claim a married tax credit because of the individual's marital status of whether the phrase includes an individual who is unable to claim his or her spouse because of the spouse's net income. Similarly, you ask if the wife would still be precluded from making a claim under paragraph 118(1)(b) of the Act if she was entitled to a tax credit under paragraph 118(1)(a) of the Act but that credit was less than that which would be available under paragraph 118(1)(b) in respect of the individual she was supporting before the change in her marital status.
The preamble in paragraph 118(1)(b) of the Act prevents an individual who might otherwise be entitled to a tax credit under both (a) and (b) from either claiming both credits or choosing which credit is more advantageous. It is our view that the preamble describes an individual who is unable to claim an amount under paragraph 118(1)(a) of the Act for any reason including the level of the spouse's net income. Where an individual cannot make a claim under paragraph 118(1)(a) of the Act for any reason and meets the criteria described in subparagraphs 118(1)(b)(i) and (ii) in respect of an individual at some point in the year, an equivalent to married tax credit as determined under subparagraph 118(1)(b)(iii) or (iv) may be claimed. The judicial support for the comments in paragraph 18 of the bulletin tends to focus on questions of fact, such as whether the individual supported his or her spouse and whether the child was wholly dependent on only one of the two parents. In the most recent case of Schachtschneider v The Queen (93 DTC 5298), the court held that the scheme of the Act made it clear that the equivalent to married tax credit was only available to an individual who is single, widowed, divorced, or separated. Consequently, where an individual is not entitled to an amount under paragraph 118(1)(a) of the Act, the credit under paragraph 118(1)(b) will be denied to the individual on other grounds. However, in the case of an individual who is entitled to a married tax credit, regardless of the amount and the circumstances, that individual is not technically entitled to a deduction under paragraph 118(1)(b) of the Act.
The comments in paragraph 11(a) of Interpretation Bulletin IT-513 state that a taxpayer is allowed the most beneficial deduction in computing income or tax credit of any to which the taxpayer is entitled during a year in which a change in marital status occurs. This reflects a long standing administrative policy of permitting the most advantageous claim in the year of marriage which can been traced to at least 1959. Notwithstanding that the deduction under paragraph 118(1)(b) is not technically available in this situation, we believe the administrative position of allowing the most beneficial deduction in this situation is consistent with our position for allowing the more beneficial deduction in the year of separation. Consequently, on an administrative basis, an individual could claim the other dependant in the year in which the change in marital status occurs if that is more beneficial even though the individual would otherwise have been entitled to a deduction for her spouse.
Your second question relates to the interrelationship between paragraph 118(1)(a) and paragraph 118(1)(b) of the Act. In the situation you describe, a husband, wife and daughter live in the same house. The wife has no income and husband and adult daughter contribute towards the maintenance of the dwelling. You ask whether it is possible for the daughter to claim an amount under paragraph 118(1)(b) of the Act in addition to the husband's claim under paragraph 118(1)(a) of the Act.
We would first note that if the daughter only pays amounts that can be regarded as being for her accommodation and meals, it is our view that no amount should be considered to have been paid for the support of her mother. In such a case we regard any financial assistance provided by the daughter as enhancing the lifestyle of the family rather than being in the nature of support for her mother. The basis for this view is Goodman v MNR (57 DTC 89) in which it was held that amounts paid by a son to his father represented amounts paid solely for his accommodation and meals rather than involving support in respect of his younger brother. In general terms, "support" involves the provision of the basic necessities of life such as food, shelter, and clothing. In most situations similar to the one you describe the daughter would not be legally responsible for her mother's support nor would her contributions to the family be considered as such. Even in the event that the daughter's contributions could be considered as support for the mother, the claim by the father suggests that he also supports the mother and thus, it cannot be said that the mother was wholly dependant on the daughter for support. It follows that the daughter would not be entitled to a married equivalent tax credit for her mother.
Your last question relates to the requirement in clause 118(1)(b)(ii)(A) of the Act that, except where the dependant is a child of the taxpayer, a dependant must be resident in Canada in order for the taxpayer to be able to claim a personal tax credit under paragraph 118(1)(b) of the Act for that dependant. You ask for clarification as to the purpose of the exception for the child of the taxpayer and ask us to comment on several examples.
An individual who is factually resident in Canada is not usually entitled to the equivalent to married tax credit in respect of a non-resident dependent including the child of the individual, because the dependent cannot be said to live with the supporting person. However in certain circumstances, such as where a non-resident computes his income under section 115 of the Act and is not precluded from claiming personal tax credits by reason of section 118.94 or where a non-resident is deemed to be resident in Canada by reason of paragraph 250(1)(a) of the Act, the individual may be entitled to the equivalent to married tax credit in respect of a non-resident child who lives with the individual outside of Canada.
You also asked about the comments in the T1 Guide concerning a claim under paragraph 118(1)(b) of the Act for a dependant who is living away from home while attending school. As stated above, a claim under paragraph 118(1)(b) of the Act can only be made if the dependant ordinarily lives in the same self-contained domestic establishment as the person making the claim. However, it is a question of fact as to where a particular individual ordinarily lives at any particular time. The comments in the Guide acknowledges the fact that a dependant may ordinarily live in the same place as the supporting person even though the child is away at school for 8 months of the year.
With respect to the examples given, a deemed resident of Canada can claim the equivalent to married tax credit for another deemed resident of Canada if the criteria in paragraph 118(1)(b) of the Act are met (your examples a and b). Provided that the child ordinarily lives with the parent, the parent could claim the equivalent to married tax credit for a child attending school outside of Canada (your example c). However, while we could not say with certainty that the situation would not exist, it seems unlikely that the parent attending school outside of Canada could be considered to ordinarily live with the adult child in the reverse example cited as d) and thus it is unlikely that the credit would be available to the adult child. In your last example where the child is a non-resident of Canada and the parent is residing in Canada, it also seems unlikely that the child and parent could be considered to live within the same self-contained domestic establishment; nevertheless since residency determination involves a finding of fact we cannot say with certainty that an individual actually living in Canada could not claim the tax credit for a non-resident child.
Unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993.
Should you require further technical assistance, we would be pleased to provide our views.
P.D. Fuoco
Section Chief
Personal and General Section
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
c.c. Client Assistance Directorate
c.c. Assessment of Returns Directorate
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