10 January 2011 External T.I. 2010-0368381E5 - Equivalent-to-Spouse Credit -shared custody

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: 1. Can each parent claim a child under line 305 as an equivalent-to-spouse? [i.e. Mother claims child X; Father claims child Y.]
2. If so, does this child claimed as equivalent-to-spouse have to be the same child as claimed under Child Tax Credit?
3. What documentation would be needed for the above scenario exists?

Position: 1. Generally, yes
2. Yes
3. Keep any agreements for future queries

Reasons: Legislation and previous positions

XXXXXXXXXX
									2010-036838
      								George A. Robertson, CMA 

January 10, 2011

Dear XXXXXXXXXX :

Re: Equivalent-to-Spouse Credit

This is in response to your request of May 21, 2010 requesting our views on claiming an eligible dependent under paragraph 118(1)(b) of the Income Tax Act (the Act) where there is a shared custody arrangement with two children; 50/50 care and control, as well as shared costs for upbringing of the children.

Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, (IC 70-6R5) dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are however, prepared to provide the following general comments, which may be of assistance.

Based on our understanding, the scenario is:

Both parents are employed full time and child support is being paid based on an "off-set" basis based on the parent's income. i.e. based on mother's income she would have to pay support of $1000 per month to father, based on father's income would have to pay $1500 per month to mother, so the off-set is to the father paying $500 per month to the mother. There are 2 children; there are two separate residences; each parent maintains their own respective home in which each child spends 50% of their time. You are in the process of a separation. Can each parent claim a child under line 305 as an equivalent-to-spouse? [i.e. Mother claims child X; Father claims child Y.] If so, does this child claimed as equivalent-to-spouse have to be the same child as claimed under Child Tax Credit? What documentation would be needed for the above scenario exists?

Section 118 of the Act provides the legislation for supporting individuals to claim the wholly dependent person tax credit, commonly referred to as "the equivalent to spouse credit". Where an individual does not claim a spousal tax credit under paragraph

118(1)(a) of the Act, the individual may claim the equivalent to spouse credit under paragraph 118(1)(b) of the Act in respect of a wholly dependent person. In addition to other tests of eligibility described in detail in Interpretation Bulletin IT-513R, Personal Tax Credits, this credit is generally available in respect of children under the age of 18 who reside in a home with and are wholly dependent for support on the individual who maintained the home in the year. In order for a child to be considered "wholly dependent" on a parent, the parent must be responsible for the usual day-to-day activities of raising the child, such as ensuring the child attends school, preparing regular meals, etc. In other words, the child would have to live with the parent during the days in question. Whether an individual meets the conditions under paragraph 118(1)(b) of the Act, or whether the child who is wholly dependent on a parent resides with the individual at any time in the year, is a question of fact and can only be determined by examining all of the facts in a given situation.

Subsection 118(4) of the Act contains restrictions with respect to an individual's entitlement to the equivalent to spouse credit. In particular, an individual cannot claim the credit in a taxation year in respect of more than one person. Furthermore, the credit cannot be claimed by more than one individual for the same person or the same domestic establishment. If two or more individuals are otherwise eligible to claim the credit, and they are unable to agree as to who should claim the tax credit, neither can claim the credit.

The restriction on claiming the wholly dependent person amount when child support is payable is found in subsection 118(5) of the Act. Prior to 2007, where, in the same taxation year, two parents paid support amounts in respect of a child, neither parent would be eligible for the credit. Subsection 118(5.1) of the Act now corrects this unintended result by providing that, in such a case, the Act is to be read without reference to subsection 118(5) of the Act. This ensures that one of the parents may claim the equivalent to spouse credit in respect of a child if they otherwise qualify.

Where parents have shared custody with a child living approximately 50% of the time with each parent, both parents would likely meet the equivalent to spouse credit requirements under paragraph 118(1)(b) of the Act. In that case, if each parent otherwise meets the criteria, either parent (but not both) can claim the equivalent to spouse credit for a child. Where custody of two or more children is shared, and each parent otherwise meets the criteria, one parent can claim the equivalent to spouse credit for one of the children and the other parent can claim the credit for another child.

Pursuant to subparagraph 118(1)(b.1)(ii) of the Act, only an individual who is the parent of a child who is under the age of 18 at the end of a taxation year who claims the equivalent-to-spouse credit for a wholly dependent person in respect of that child, can claim the child tax credit in respect of the same child.

With respect to the type of documentation to support the equivalent-to-spouse credit, any agreement should be available, if queried at a later date. Otherwise, calculate your amount on line 305 of your Schedule 1, complete the appropriate part of Schedule 5, and include both schedules with your return.

While we trust that these comments will be of assistance, they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R5 and are not binding on the CRA in respect of any particular situation.

Yours truly,

Sharmini Ratnasingham
Assistant Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch