8 October 1998 External T.I. 9814585 - 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 981458
M. Eisner
October 8, 1998

Dear XXXXXXXXXX:

Re: Equivalent-To-Spouse Tax Credit

This is in reply to your letter of June 2, 1998, concerning the above-noted subject. We also acknowledge our telephone conversation (XXXXXXXXXX/Eisner) on August 19, 1998 in which we obtained clarification of your circumstances.

Situation 1

You have indicated that you and your wife, who have one four year old child, separated in the middle of April 1998 as a result of a marriage breakdown and have lived separate and apart since that time. You have custody of the child for 50% of the time and your wife has custody of the child for the other 50% of the time. Currently, you and your spouse share the costs of child care. However, there is no court order or written agreement between you and your spouse with respect to child support. With respect to these circumstances, you have asked us about the equivalent-to-spouse tax credit under paragraph 118(1)(b) of the Income Tax Act (the “Act”) with respect to 1998 and subsequent years on the basis that neither you nor your spouse is eligible to claim a spousal tax credit pursuant to paragraph 118(1)(a) of the Act for such years.

Our Comments

The Department’s general position on personal tax credits is set out in Interpretation Bulletin IT-513R, which has been enclosed for your reference.

In your current circumstances, you or your spouse may be eligible to claim the equivalent-to-spouse tax credit in respect of the child for 1998 or a subsequent year (assuming that the above circumstances remain the same other than if you and your spouse become divorced). Pursuant to paragraph 11 of IT-513R, an individual who is eligible to claim the equivalent-to-spouse tax credit must have (i) maintained a residence either alone or with other persons, (ii) lived in the residence, and (iii) supported a qualified relative (a qualified relative includes a natural child of the individual who is under 18 years of age). However, by virtue of paragraph 118(4)(b) of the Act, the equivalent-to-spouse tax credit cannot be claimed by more than one individual for the same person. If two individuals are otherwise eligible to claim the equivalent-to-spouse tax credit, and they are unable to agree as to who should claim the tax credit, neither can claim the credit. General comments in this regard are set out in paragraph 21 of IT-513R. It would follow that, for 1998 and subsequent years, either you or your spouse would be eligible to claim the equivalent-to-married tax credit provided that the equivalent-to-married tax credit is only claimed once for a particular year (i.e., by you or your spouse) and the other requirements set out above are satisfied.

Situation 2

You have also asked us to address the situation where each of two legally married individuals (“Individual A” and “Individual B”), who have one natural child, separate in 1998 as a result of the breakdown of their marriage with each of the two individuals having custody of the child 50% of the time. Under a court order issued in 1998, Individual A pays to Individual B, as child support for the year, the difference between the amount Individual A would pay to Individual B for the periods in the year that Individual B had full custody of the child and the amounts that Individual B would pay to Individual A for the periods in the year that Individual A had full custody of the child. The “Federal Child Support Guidelines” are used with respect to the order. Again, the sole issue you have asked us to address is the application of the equivalent-to-spouse tax credit assuming that neither Individual A nor Individual B is entitled to claim the spousal tax credit.

Our Comments

In the second situation, the provisions of subsection 118(5) of the Act must be considered. Under this provision, 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.

While each of Individual A and Individual B would be entitled to claim the equivalent-to-spouse tax credit in the year of separation provided the requirements set out above in (i) to (iii) have been satisfied (i.e. paragraph 11 of IT-513R), the claim for the equivalent-to-spouse tax credit in that year would be subject to the provisions of paragraph 118(4)(b) of the Act which is also discussed above (i.e., assuming that Individual A and Individual B qualify for the equivalent-to-spouse tax credit, it may only be claimed by either Individual A or B). If Individual A and Individual B are otherwise eligible to claim the equivalent-to-spouse tax credit, and they are unable to agree as to who should claim the tax credit, neither can claim the credit.

In a year subsequent to 1998, it would be necessary to review the court order as a result of the provisions of subsection 118(5) of the Act. However, it is our view that if each of Individual A and Individual B is required to pay a “support amount” to his or her spouse under the court order, then neither Individual A or Individual B would qualify for the equivalent-to-spouse tax credit by virtue of subsection 118(5) of the Act as both individuals are required to pay “support amounts”. We also note that this result would not change even though the payments of support required by one of the individuals are offset against higher support amounts required to be paid by the other individual (i.e., the individual required to pay the higher support amounts would pay a net amount to the other individual), either voluntarily or by a process set out in the court order.

In summary, it is the court order that determines whether a “support amount” is payable by an individual. The process (e.g. the Federal Child Support Guidelines) that the court followed in arriving at the “support amount” payable is not relevant to the fundamental issue, with respect to subsection 118(5) of the Act, of whether “the individual is required to pay a support amount”. Accordingly, a definitive opinion on these matters can not be given without the opportunity of reviewing the actual court order. The wording of the court order will be the determinative factor.

In your example provided, you indicate that “under a court order issued in 1998, Individual A pays to Individual B, as child support for the year, .....”. As long as the court order only provides for child support to be payable by Individual A, then Individual B would be entitled to the equivalent-to-spouse tax credit, subject to the criteria described above. However, the description you have provided with respect to the wording of the court order is too vague in order for us to provide any conclusive opinion. We would need to review the actual court order.

We recognize that, when a court order is worded in a manner that both individuals are required to pay a support amount, the application of subsection 118(5) of the Act to both individuals may raise a tax policy issue. Accordingly, we will be bringing the matter to the attention of the Department of Finance who are responsible for amendments to the Act.

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