12 July 1994 Internal T.I. 9410697 - INTERACTION OF ALIMONY & PERSONAL TAX CREDIT

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:

Does the existence of a court-ordered obligation to make support payments to the other parent in respect of a child prevent the taxpayer from claiming a personal tax credit (118(1)(b) in particular) for the child when the child is residing with the taxpayer (rather than the parent entitled to the support payments for that child) and the taxpayer has not made the payments required by the court order for the period of time when the child resided with the payor?

Position TAKEN:

In the case presented, the taxpayer did make support payments in the year so subsection 118(5) prevents the t/p from claiming a tax credit (since the child did not reside with the taxpayer for the entire taxation year).

We also considered the situation where 118(5) does not preclude the t/p from claiming a personal tax credit: in such a situation the facts may show that the taxpayer is otherwise not entitled to a credit for the child. Alternatively, the facts may show that the taxpayer is not entitled to a deduction for court ordered "arrears" payments made to the former spouse for the child in respect of this period of time.

Reasons FOR POSITION TAKEN:

a taxpayer who pays no support in the year is not entitled to a deduction under 60(b),(c) or (c.1) IN THE YEAR. It is unlikely that the taxpayer could become entitled to both a deduction for the child support payments in a subsequent year and the personal tax credit because the facts would likely indicate that the support payments weren't required or that the child was not dependant upon the taxpayer for support.

		July 12, 1994
	EDMONTON DISTRICT OFFICE	Rulings Directorate
	Client Assistance	A. Humenuk
		957-8953

Attention: Lorraine Johnson
941069

Equivalent to Married Tax Credit

We are replying to your memorandum received April 22, 1994 concerning a taxpayer who wishes to claim an equivalent to married tax credit for his child despite the fact that he has a court order requiring him to pay child support to his former spouse in respect of the child.

In the comments that follow, 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 (the "Act").

As we understand the situation, the taxpayer is required under a court order issued in 1989 to pay his former spouse XXXXXXXXXX While not stated in your correspondence, we assume that the wording of the court order does not limit the amount payable to his spouse in the event the children do not reside with her. In XXXXXXXXXX, one of the children moved in with his/her father. While the court order was not amended to relieve the father of the obligation to make payments on behalf of that child, no payments were in fact made for the period XXXXXXXXXX for that child. In XXXXXXXXXX, the child returned to the care of the mother. The father has argued that he should be entitled to an equivalent to married tax credit for 1990 because he did not make any child support payments for that child during the period in which the child lived with him and thus was not entitled to a deduction for that child under 60(b) of the Act for that period.

It is your view that the father would not be entitled to a 1990 personal tax credit for that child regardless of whether he made any support payments in 1990 on the basis that subsection 118(5) of the Act would preclude him from claiming a personal tax credit. You base your views on the fact that the taxpayer will be entitled to a deduction under paragraph 60(b) of the Act if and when the amount is paid. You are concerned that the intent of subsection 118(5) of the Act would be thwarted if the father was entitled to a personal tax credit in 1990 and then made an "arrears payment" in 1991 to cover the payments not made during 1990.

Subsection 118(5) deems an individual who is entitled to a deduction under paragraph 60(b),(c) or (c.1) of the Act for the year not to be the spouse or parent of the individual in respect of whom the maintenance payment is made for that particular taxation year. By reverse implication, this means that a personal tax credit will be available to a taxpayer who otherwise supports his or her child during the year where all the other criteria for the credit are met and the taxpayer is not entitled to a deduction under paragraph 60(b),(c) or (c.1) of the Act for the year. This may include the situation where a taxpayer is not entitled to the deduction by reason of his or her failure to make the required support payments in the year.

In the situation you describe however, it would appear that the taxpayer was entitled to a deduction under paragraph 60(b) of the Act in 1990 for the child who resided with him from XXXXXXXXXX by reason of the support payments made from XXXXXXXXXX

In our telephone conversation of July 5, 1994 (Johnson\Humenuk), you indicated that this issue has arisen several times in the past and in at least one of those instances, the taxpayer had not in fact made any of the required support payments in the taxation year and that taxpayer had been required to pay the arrears when the child returned to live with the other parent. You noted that under the Maintenance Enforcement Act of Alberta, the Director of Maintenance Enforcement is required to enforce the terms of the court order unless the creditor has filed a written notice with the Court that he or she does not want the order so enforced. Based on the premise that the court order will be enforced by the Director of Maintenance Enforcement, you suggest that the taxpayer who is required to make the support payments will be entitled to a tax credit for the child under section 118 in one taxation year and will be entitled to a deduction for the support payments in the following year.

While such a situation might theoretically be possible, a close examination of the facts should be made before making such a determination. For example, the court order or agreement may reveal that payments for the child are not required to be made if the child is not in the custody of the parent entitled to receive the support payments described in the court order. Where the court order or agreement is silent on the issue, it is likely that the payer would have reasonable grounds to ask for relief from making the payments for the period during which the child was in his or her custody. Indeed, a reasonable argument can be made to disallow an income tax deduction for any payment made in respect of the child for that period on the basis that such a payment was not for the maintenance of the child (as required by paragraph 60(b) of the Act) since the responsibity for that child's maintenance during the period in question rested with the payer.

Alternatively, it may be that the child's stay with the payer is more akin to a visit with the result that the child may not be dependant on or, in the case of a tax credit under paragraph 118(1)(b) of the Act, wholly dependant on the payer for support during that period. While it is not necessary for a parent have legal custody of the child in order to claim a tax credit under section 118 of the Act, a distinction can be made between a contribution to the support of a child and the situation where the child is dependant on the parent for support. In the case of a visit, a child would ordinarily remain dependant on the parent who had custody of the child and any support given by the other parent would be in the nature of a gift.

If you identify a particular situation where it appears that the taxpayer is entitled to a deduction for a personal tax credit for a child in one taxation year and a deduction for support of that same child for the same period in another taxation year, we would be pleased to review the situation as revealed by the supporting documentation and offer our comments.

P.D. Fuoco
Section Chief
Personal and General Section
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch