30 August 2010 External T.I. 2010-0369571E5 - Wholly dependent person 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.

Principal Issues: Whether an individual, who makes support payments under a shared custody arrangement, can claim the credit under paragraph 118(1)(b) for one child.

Position: Question of fact whether an individual parent meets the criteria, but support payments made in respect of a child in certain shared custody arrangements will not, in itself, prevent a parent from claiming the credit for a child.

Reasons: Where no individual is entitled to the tax credit under paragraph 118(1)(b) by reason of paying a support amount in respect of a child, subsection 118(5.1) ensures that an individual, who is otherwise entitled, will not be denied the credit.

XXXXXXXXXX
								2010-036957

August 30, 2010

Dear XXXXXXXXXX :

Re: Dependent Person Tax Credit

This is in reply to your submission of June 1, 2010 concerning your eligibility to claim a tax credit in respect of your son. We understand that both you and your former spouse pay support for your two children in a shared custody arrangement.

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 request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments.

Our Comments

Section 118 of the Income Tax Act (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) 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. Although custody arrangements are an important factor to be considered in the determination of whether or not eligibility requirements have been met, such determination will always depend on the facts of each individual case. Paragraph 26 and Appendix A (under the heading "Support") of IT-513R, explains that support involves the provision of the basic necessities of life such as food, shelter and clothing. Support is usually given voluntarily, but includes support under a legal commitment.

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.

We trust our comments will be of assistance to you.

Yours truly,

Lita Krantz, CA
Assistant Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch