REASONS
FOR JUDGMENT
D’Auray J.
I. OVERVIEW
[1]
The issue in this appeal is whether the appellant
is entitled to claim the tax credits for a wholly dependent person and child
amount (the “Tax Credits”) pursuant to paragraphs 118(1)(b) and (b.1)
of the Income Tax Act (the “Act”) for his 2009 and 2010 taxation
years.
[2]
The respondent’s position is that the appellant
is not entitled to the Tax Credits since during the years under litigation
the appellant was paying child support payments to his former spouse.
II. FACTS
[3]
The appellant and his former spouse, Ms.
Stuifbergen, were separated in 1998 and divorced in 2006.
[4]
The appellant and Ms. Stuifbergen had six
children, Ma born in 1989, M and K born in 1991, Mar born in 1993, J born
in 1995 and M born in 1998.
[5]
Pursuant to an Order of the Ontario Superior
Court of Justice, Family Court, pronounced on April 7, 2003 (the “April
Order”), the appellant had legal custody of the three oldest children and Ms.
Stuifbergen had legal custody of the three youngest children. Specifically, the
three oldest children had to reside with the appellant and were under his care
and control at all times, and the three youngest children had to reside with
Ms. Stuifbergen and were under her care and control at all times.
[6]
In the April Order, the Court ordered that
commencing June 1, 2003, the appellant had to pay child support for the three
youngest children in accordance with the Federal Child Support Guidelines
(the “Guidelines”). The support payments were for the three children only
and the calculation was based on the appellant’s income alone, since at that
point, Ms. Stuifbergen was not earning any income.
[7]
There was also a clause in the April Order that
provided that if Ms. Stuifbergen were to obtain employment, the quantum
for the child support would be adjusted by taking the difference between the
amounts that each party would otherwise pay if a child support order were
sought against each of the parties. The April Order also stipulated that any
child upon attaining age 12 or older had the right to change their residence at
their own direction.
[8]
The April Order was amended by a written
agreement dated September 15, 2005 (the “September Agreement”). The
September Agreement took into account that Ms. Stuifbergen was now employed and
that one of the oldest children who was previously residing with the appellant
was now residing with Ms. Stuifbergen.
[9]
Under the September Agreement, the appellant was
required to pay to Ms. Stuifbergen the amount of $894 per month for four
children of the marriage, and Ms. Stuifbergen was required to pay to the appellant
the amount of $415 per month for two children of the marriage. The difference
was paid by the appellant to Ms. Stuifbergen.
III. LAW
AND ANALYSIS
[10]
For the purposes of the Tax Credits, a wholly
dependent person and child amount are defined in subsection 118(1) of the Act
as follows:
118. (1) For the purpose of computing the
tax payable under this Part by an individual for a taxation year . . .
Wholly dependent person
(b) in the case of an individual who does
not claim a deduction for the year because of paragraph (a) and who, at any
time in the year,
(i) is
(A) a person who is unmarried and who does
not live in a common-law partnership, or
(B) a person who is married or in a
common-law partnership, who neither supported nor lived with their spouse or
common-law partner and who is not supported by that spouse or common-law
partner, and
(ii) whether alone or jointly with one or
more other persons, maintains a self-contained domestic establishment (in which
the individual lives) and actually supports in that establishment a person who,
at that time, is
(A) except in the case of a child of the
individual, resident in Canada,
(B) wholly dependent for support on the
individual, or the individual and the other person or persons, as the case may
be,
(C) related to the individual, and
(D) except in the case of a parent or
grandparent of the individual, either under 18 years of age or so dependent by
reason of mental or physical infirmity,
an amount equal to the total of
. . .
Child amount
(b.1) where
(i) a child of the individual ordinarily
resides throughout the taxation year with the individual together with another
parent of the child, $2,000 for each such child who is under the age of 18
years at the end of the taxation year, or
(ii) except where subparagraph (i) applies,
the individual may deduct an amount under paragraph (b) in respect of the
individual’s child who is under the age of 18 years at the end of the taxation
year, or could deduct such an amount in respect of that child if paragraph
118(4)(a) did not apply to the individual for the taxation year and if the
child had no income for the year, $2,000 for each such child,
. . .
(4) For the purposes of subsection 118(1),
the following rules apply:
. . .
(b) not more than one individual is
entitled to a deduction under subsection (1) because of paragraph (b) or (b.1)
of the description of B in that subsection for a taxation year in respect of
the same person or the same domestic establishment and where two or more
individuals otherwise entitled to such a deduction fail to agree as to the
individual by whom the deduction may be made, no such deduction for the year
shall be allowed to either or any of them;
. . .
(5) No amount may be deducted under
subsection (1) in computing an individual’s tax payable under this Part for
a taxation year in respect of a person where the individual is required to
pay a support amount (within the meaning assigned by subsection 56.1(4)) to
the individual’s spouse or common-law partner or former spouse or common-law
partner in respect of the person and the individual
(a) lives separate and apart from the
spouse or common-law partner or former spouse or common-law partner throughout
the year because of a breakdown of their marriage or common-law partnership; or
(b) claims a deduction for the year because
of section 60 in respect of a support amount paid to the spouse or common-law
partner or former spouse or common-law partner.
(5.1) Where, if this Act were read without
reference to this subsection, solely because of the application of
subsection (5), no individual is entitled to a deduction under paragraph (b) or
(b.1) of the description of B in subsection (1) for a taxation year in
respect of a child, subsection (5) shall not apply in respect of that child for
that taxation year.
[Emphasis
added.]
[11]
A support amount is defined in subsection
56.1(4) as follows:
56.1(4) “support amount” means an amount
payable or receivable as an allowance on a periodic basis for the maintenance
of the recipient, children of the recipient or both the recipient and children
of the recipient, if the recipient has discretion as to the use of the amount,
and
(a) the recipient is the spouse or
common-law partner or former spouse or common-law partner of the payer, the
recipient and payer are living separate and apart because of the breakdown of
their marriage or common-law partnership and the amount is receivable under an
order of a competent tribunal or under a written agreement; or
(b) the payer is a legal parent of a child
of the recipient and the amount is receivable under an order made by a
competent tribunal in accordance with the laws of a province.
[12]
Subsection 118(5) of the Act precludes a
taxpayer from claiming the Tax Credits if she or he paid child support payments
as contemplated by subsection 56.1(4) of the Act.
[13]
Subsection 118(5.1) of the Act, however,
provides that if no individual is entitled to deduct the Tax Credits because of
the application of subsection 118(5) of the Act, subsection 118(5) may
be ignored.
[14]
The respondent submitted that the appellant was
not entitled to claim the Tax Credits because the appellant was paying child
support to his former spouse in accordance to subsection 118(5) of the Act.
To support her position, the respondent quoted the decision in Verones v R.
[15]
In Verones, Mr. Verones and his
former spouse had two children. The children resided 50% of the time with each
parent in a joint custody agreement. The child support payments were based on
the income of both parties. The person having the higher income, Mr. Verones,
had to pay the difference (a “set‑off” amount) to his former spouse
for the children of the marriage. Mr. Verones stated that since he and his
former spouse were both paying support, he should have been entitled to the Tax
Credits. Justice Trudel of the Federal Court of Appeal in Verones
explained that the set off concept did not apply since the income of both
spouses is always taken into account to establish the child support payments.
She stated at paragraph 8 the following:
[8] Once each
parent’s obligation vis-à-vis the children is determined, the higher income
parent may be obligated to make child support payments to the lower income
parent as part of his or her performance of said obligation. However, in the
end, the set-off concept does not translate the parents’ respective obligation
to contribute to child rearing into a "support payment" as defined in
the Act.
[16]
The appellant argued that he and his former
spouse were both obligated to pay child support. Therefore, the appellant
argues that he should be granted the Tax Credits.
[17]
In my view, the appellant’s position is correct,
this appeal can be distinguished from the decision in Verones. In this
appeal, both parents have the legal obligation pursuant to the September Agreement
to pay child support, which was not the case in Verones.
[18]
In Verones, the child support was based
on the Guidelines taking into account the two children. The child support was
determined on a pro rata basis in accordance with the parents’ respective
income. Only Mr. Verones had the obligation to pay child support.
[19]
In this appeal, both parents have an obligation
to pay child support under the September Agreement. The appellant has to pay
for the four children under the legal custody of Ms.
Stuifbergen and she has to pay for the two children
under the legal custody of the appellant.
[20]
This appeal falls within the first example
provided by Justice Miller of this Court in Letoria v Canada, who stated:
9 I dealt
with a somewhat similar situation in the case of Ochitwa where I stated:
8. While I cannot disagree with the
Respondent's conclusions, I am perturbed by the implications that in the same
circumstances of a shared custody arrangement, that simply due to the crafting
of an order or agreement a parent will or will not get the eligible dependant
amount. For example, where there is a shared custody arrangement with two
children it strikes me there are three possible ways to craft the child
support, where each parent earns some income:
1. Each parent agrees to or is
ordered to pay support for one child ($400 for one for example and $300 for the
other -- net $100.00): both could claim the eligible dependant amount. . .
.
[Emphasis added.]
[21]
This type of agreement triggers the application
of subsection 118(5.1) of the Act. If subsection 118(5.1) of the Act did
not exist, both the appellant and his former spouse would have not been
entitled to claim the child amounts for the children Ma and Mar, since both Ma
and Mar did not ordinarily reside throughout the taxation years with Ms.
Stuifbergen, and the appellant was paying child support.
[22]
Therefore, the appellant is entitled to claim
the Tax Credits for the 2009 and 2010 taxation years as he falls within the
ambit of subsection 118(5.1) of the Act. However, as Ma was over the age
of 18 at the end of 2009, the appellant may only claim the Tax Credits in
respect of Mar for both taxation years. The appeal is therefore allowed on that
basis.
Signed at Ottawa, Canada, this 12th
day of October 2016.
“Johanne D’Auray”
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