8 October 1998 External T.I. 9733435 - CHILD SUPPORT

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: A court order is prepared in circumstances where the Federal Child Support Guidelines must be used in respect of an individual and his or her spouse who have joint custody of their child. The use of the Guidelines results in the individual paying a support amount (defined in subsection 56.1(4) of the Act) to the spouse and the spouse paying a support amount to the individual. However, only the individual is required to pay an amount under the court order. Is the spouse prevented from claiming the equivalent-to-spouse credit on the basis that the spouse is required to pay a support amount to the individual?

Position: No

Reasons: Whether or not the spouse is required to pay a support amount will be determined by reference only to the court order.

XXXXXXXXXX 973343
M. Eisner
Attention: XXXXXXXXXX

October 8, 1998

Dear Sirs:

Re: Federal Child Support Guidelines (the "Guidelines")

This is in reply to your letter of December 17, 1997, concerning the above-noted subject. We apologize for the delay in replying.

You have raised three issues concerning the Guidelines, which are used in determining the amount of child support that is to be paid by one spouse to another spouse. All three situations concern the equivalent-to-spouse credit (the "Credit") and the provisions of subsection 118(5) of the Income Tax Act (the "Act"). Under subsection 118(5) of the Act, an individual cannot claim a personal tax credit in respect of the individual's child after 1996 if the individual is required to pay a "support amount" 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. A support amount, as defined in subsection 56.1(4) of the Act, includes an amount payable on a periodic basis to a recipient where the recipient has discretion as to the use of the amount that is for the maintenance of a child of the recipient, the payer and the recipient are living separate and apart as a result of the breakdown of their marriage and the amount is receivable under an order of a competent tribunal or under a written agreement. The comments made below on all three situations are made on the presumption that a recipient and a payer are described within the definition of "support amount" within subsection 56.1(4) of the Act, that a support order has been made under the Guidelines and that the two individuals have been separated for a full calendar year (i.e., the year is one that is subsequent to the year in which the two individuals separated from each other).

Situation 1

A separated couple (Individual A and Individual B) share custody of their two children. The court order only requires that Individual A pay a support amount to Individual B. In these circumstances, it is our view that Individual B would be entitled to claim the Credit assuming Individual B otherwise meets the necessary requirements. Consistent with these comments, it is our general view that it is the order that determines whether a support amount is to be paid by an individual notwithstanding that an amount that Individual B might pay to A under the Guidelines has been offset against the amount payable by Individual B under the Guidelines with only the net amount being set out in the order.

Situation 2

A separated couple (Individual C and Individual D) has two children. Each of Individual C and Individual D retained full custody of one child ("Child 1" and "Child 2" respectively). The court order requires Individual D to pay support to Individual C. In connection with this situation, it is noted that, pursuant to section 8 of the Guidelines, the court order sets out a net amount which is the difference between the amount that Individual D is required to pay to Individual C under the Guidelines with respect to Child 1 and the amount Individual C would pay to Individual D under the Guidelines with respect to Child 2. In these circumstances, it is our view that Individual C would be entitled to claim the Credit with respect to Child 1 assuming Individual C otherwise qualifies. We are also of the view that Individual D would be entitled to claim the Credit with respect to Child 2. In this regard, the support amount payable by Individual D under the court order is in respect of Child 1 and, therefore, subsection 118(5) of the Act will not deny a claim by Individual D in respect of Child 2, assuming Individual D otherwise qualifies.

Situation 3

A separated couple (Individual E and Individual F) has several children. Individual E has full custody of the children. Individual F is required to pay 80% of the child care costs under a court order. The determination of the percentage involved section 7 of the Guidelines which deals with special or extraordinary expenses. Such expenses are generally shared by the parents in proportion to their respective means. With respect to these circumstances, it is our view that Individual E would not be regarded as having paid a support amount to Individual F on the basis that the court order would only provide for the payment of amounts from Individual F to Individual E in respect of the child expenses. Accordingly, Individual E would be entitled to claim the Credit assuming that Individual E otherwise meets the necessary requirements. However, where the court order clearly requires both Individual E and F to pay amounts to each other in respect of child expenses, and such amounts otherwise meet the definition of "support amounts" as explained above, then neither party would be entitled to claim the Credit.

We would generally need to review all the relevant documentation (e.g., the court order) before we can make a final determination of the application of subsection 118(5) of the Act. However, as mentioned above, it is the court order that determines whether a support amount is payable. The process that the court went through (e.g., the Guidelines) to determine the amounts of child support payable may not necessarily be relevant with respect to the application of certain provisions of the Act.

In your letter, you have also enclosed a letter (file # 971921) dated November 13, 1997. This letter referred to a joint custody situation where, pursuant to the Guidelines, an individual was required to pay support to his spouse and that spouse was required to pay support to the individual. As a result of offsetting the amount the spouse was required to pay against the amount that the individual was required to pay, only the individual would make support payments. In the circumstances, it was indicated that it appeared that neither party could claim the Credit. However, the penultimate paragraph of that letter also indicated that, while the Guidelines may determine the quantum of support to be paid and possibly provide for the netting out of reciprocal support amounts, the requirement to pay a support amount is ordinarily found in the written agreement or court order, as the case may be. Accordingly, the position was based on the premise that the spouse and the individual were each required to pay a support amount under the court order or agreement. In the event that this was not the case (i.e., the written agreement or order specified the periodic amount that only the individual was required to pay to his spouse), the spouse would be entitled to claim the Credit assuming she otherwise meets the necessary requirements.

We also wish to clarify that the Guidelines, which may be used in setting out a support amount in a written agreement that is an out-of-court settlement, are not mandatory for such settlements and that we would expect that such settlements would only set out a support amount that an individual is required to pay his or her spouse or former spouse with the result that the spouse or former spouse may be eligible to claim the Credit.

We recognize your concerns with respect to the application of subsection 118(5) of the Act to deny the Credit to both parents when they are living separate and apart because of a breakdown of their marriage and both are required to pay a "support amount" (as defined in subsection 56.1(4) of the Act) to each other. As amendments to the law are the responsibility of the Department of Finance, we will be bringing this issue to their attention.

We trust that these comments will be of assistance to you.

Yours truly,

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch