25 February 2011 Internal T.I. 2011-0395761I7 - UCCB and shared eligibility

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: Where single parents share custody of a child and both parents receive and designate the UCCB to the child for the year under new subsection 56(6.1), what will the child's income be (assuming he has no other income) for the purposes of the eligible dependent tax credit available under 118(1)(b) of the Act?

Position: The child's income would be $1,200 as calculated in accordance with the provisions of Division B of Part I of the Act.

Reasons: IT-513R and paragraph 118(1)(b) of the Act.

February 25, 2011

      Yves Beauchesne						Tom Posadovsky

      Individual Programs Section 				IT Rulings Directorate 

      Taxpayer Services Directorate				Ontario Corporate Tax 

      750 Heron Road						Division

      Canada Post Building, 7th Floor			(613) 952-8283

      Ottawa ON  K1A 0L5
									2011-039576

Universal Child Care Benefit

I am writing in response to your correspondence dated February 11, 2011, in which you ask for our comments concerning the changes to the Universal Child Care Benefit (the "UCCB") as a result of the 2010 Budget.

Specifically, you describe a hypothetical situation where two single parents share custody of one child and both parents receive 50% of the $1,200 UCCB allowance, or $600 for the year. Both parents designate the UCCB received to the child pursuant to subsection 56(6.1) of the Income Tax Act (the "Act"); but only one parent, in this case the mother, makes the claim for a wholly dependent tax credit in respect of the child pursuant to paragraph 118(1)(b) of the Act. Would the parent claiming the wholly dependent credit enter the dependant's income as $600 or $1,200? The child has no income other then the UCCB income allocated to him by the parents.

Our Comments

Under the provisions of the Universal Child Care Benefit Act ("UCCBA"), families receive a $100 per month ($1,200 per year) allowance after June 2006 for each child under the age of six years. Subsection 56(6) of the Act generally provides that allowances paid under the UCCBA are to be included in computing the income of the taxpayer who received the allowance, if the taxpayer does not have a spouse or common-law partner at the end of the relevant year. In any other case, the allowance is to be included in the income of the lower-income spouse or common-law partner.

In accordance with new subsection 56(6.1) of the Act, effective for the 2010 and subsequent taxation years, a single parent has the option of including the aggregate UCCB received in his/her own income or the income of a qualified dependant. It was also indicated in the March 4, 2010 budget announcement that where there is shared custody, two eligible individuals, who live separately, will be allowed to each receive one-half of UCCB amounts in respect of a child where the child lives with both individuals. This applies for benefits payable beginning July 2011.

IT-513R, Personal Tax Credits, dated February 24, 1998, discusses the wholly dependent person tax credit available under paragraph 118(1)(b) of the Act, also referred to as the "equivalent-to-spouse" tax credit. As indicated in paragraph 11 of IT-513R, an individual who is otherwise eligible and who does not claim a spousal tax credit for the year may claim an equivalent-to-spouse tax credit for a qualified relative, subject to the amount of the qualified relative's income for the year.

Appendix A of IT-513R discusses different terms used throughout the bulletin and explains that the income of a spouse or a dependant "may reduce or eliminate, where applicable, the amount of the spousal, equivalent-to-spouse or dependant tax credit that an individual may claim for that person". For the purposes of subsections 118(1) and (2) of the Act, "income must be calculated in accordance with the provisions of Division B of Part I of the Act."

Accordingly, in the scenario where both parents have designated the UCCB received to the child pursuant to subsection 56(6.1) of the Act and assuming he or she has no other income, the dependant's income for the year would be $1,200 for the purposes of the wholly dependant person tax credit, calculated in accordance with the provisions of Division B of Part I of the Act. This is the amount that should be on the "net income" line of the dependant's income tax return, or the amount that would be on that line if the dependant was to complete an income tax return. In the case where one parent designates their 50% share of the UCCB to the dependant and the other does not, the child's income would be $600.

For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the CRA's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this latter version should be made by you to Mrs. Celine Charbonneau at (613) 957-2137. In such cases, a copy will be sent to you for delivery to the taxpayer.

We hope that our comments will be of assistance to you.

Yours truly,

Guy Goulet CA, M.Fisc.
Manager
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch