SUMMARY: Support payments—clarifying—ITA-118(1)B(b), 118(1)B(b.1), 118(4), 118(5), 118(5.1)—Clarification of CRA's position in documentwith respect to (a) whether each parent can claim a child under line 305 as an equivalent-to-spouse, where there is a “set off” child support payment (i.e., Mother claims child X; Father claims child Y); and (b) documentation that is required.
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: Clarifying position taken in 2010-036838 [] with the following: a) Can each parent claim a child under line 305 as an equivalent-to-spouse, where there is a “set off” child support payment? [i.e. Mother claims child X; Father claims child Y.]
b) What documentation would be needed for the above scenario exists?
- POSITION:
- a) Question of Fact
- b) Court orders or written agreements must show a legal obligation for both parties to pay; including any set off, as applicable.
REASONS: Legislation and previous positions
XXXXXXXXXX 2011-039661
George A. Robertson, CMA
April 27, 2011
Dear XXXXXXXXXX:
Re: Eligible Dependent Credit (EDC), [formerly known as Equivalent-to-Spouse Credit]- Child Support Payments with “Set off”
This letter clarifies issues addressed in our file 2010-036838 []. Your, original May 21, 2010 letter requested our views on claiming the EDC under paragraph 118(1)(b) of theIncome Tax Act(the Act) where there is a shared custody arrangement with two children and a “set-off” arrangement for child support payments; 50/50 care and control; as well as shared costs for upbringing of the children. A “set-off” arrangement is such that it is determined that one parent [A] owes more that the other parent [B]; therefore A will be the payor of the net child support payments.
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 (TSO). A list of TSOs is available on the “contact us” page of CRA's website. We are however, prepared to provide the following clarifying comments, which may be of assistance.
Our comments
Where an individual is required to pay child support in respect of a person within the meaning assigned by subsection 56.1(4) of the Act, subsection 118(5) of the ITA generally restricts the payor from claiming the EDC in respect of that person. Prior to the 2007 taxation year, where both parents paid child support in respect of a child, neither parent could claim the EDC for that child.
New subsection 118(5.1) of the Act was introduced, effective with the 2007 taxation year, to eliminate that restriction when both parents are required to pay child support in respect of the same child. The amendment ensures that in cases where both parents had an obligation to pay a child support amount in respect of the same child, one parent could claim the EDC in respect of that child, providing all other conditions were met.
It is a question of fact as to whether the agreement or court order imposes a legally enforceable obligation on both parents to pay child support. Where a written agreement or court order requires both parents to make child support payments and both parents make actual payments (e.g. cheque, bank or maintenance enforcement programs), then supporting documents are generally available to substantiate the individual's eligibility for the exception provided under subsection 118(5.1) of the Act.
In circumstances where the parties utilize a “set-off” arrangement such that only one parent makes a child support payment for the difference, then the eligibility for the exception could still apply providing the supporting documentation and the facts provided by the individuals in question support the existence of that arrangement. However, in our view, an agreement which calculates child support obligations with reference to a statutory scheme such as the federal Child Support Guidelines which does not obligate both parties to pay child support does not meet the requirement of a legally enforceable obligation on the recipient. In this case, the payer is not entitled to claim the EDC. [Emphasis added]
Acceptable documentation to support a claim for the EDC by an individual include a written agreement or court order that provides details of each dependant, identifies the type of custody (sole, joint, split), confirms the living arrangements, and clearly imposes a legal obligation for both parents to pay child support. [Emphasis added]
Assuming both parents otherwise meet all the conditions for claiming the EDC in respect of a child, paragraph 118(4)(b) of the Act requires the parents to agree as to whom will claim the amount for the child. If the parents cannot agree, neither parent will be allowed to make the claim. Paragraph 118(4)(b) of the Act also restricts the EDC claim to one per the same domestic establishment.
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 [Information Circular 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