Principal Issues: Can a child be considered "wholly dependent for support" on a parent for the purposes of the Wholly Dependent Person Tax Credit where the parent does not have legal custody of the child?
Position: Question of fact.
Reasons: The question as to whether a child is "wholly dependent for support" on a parent does not depend upon legal custody arrangements per se.
ROUNDTABLE ON THE TAXATION OF INDIVIDUALS, FEBRUARY 2, 2017
QUEBEC ORDER OF CPAs
1.6) Tax credit for eligible dependents
A wholly dependent person tax credit ("WDPTC") is provided for under paragraph 118(1)(b) of the Income Tax Act (the "Act"). It is provided that, In order for the individual to be entitled to it, the individual must, as a general rule, meet the following conditions at any time in the year:
- be a person who does not claim the spousal credit under paragraph 118(1)(a);
- be a person who is unmarried and who does not live in a common-law partnership, or 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;
- furthermore, the person, 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, meets the following conditions:
- except in the case of a child of the individual, is resident in Canada,
- is wholly dependent for support on the individual, or the individual and the other person or persons,
- is related to the individual,
- except in the case of a parent or grandparent of the individual, is either under 18 years of age or so dependent by reason of mental or physical infirmity.
In practice, it appears that many taxpayers are denied access to the WDPTC on the grounds that the individual does not have legal custody of their child. Notices of objection must be filed and favorable situations are often resolved at this stage.
The tax authorities generally consider that where a parent has only access or visitation rights but does not have a legal right to custody, the child cannot be considered to be wholly dependent. Some technical interpretations confirm this position on the part of the tax authorities, in particular Technical Interpretation 9921477 and more recently Technical Interpretation 2010-0374871E5.
However, as a result of a few court decisions rendered in the early 2000s, there appears to be a contradiction with the Canada Revenue Agency (CRA) position regarding the legal custody requirement in order to be able to claim that a child is wholly dependent for the purposes of the WDPTC.
QUESTION TO CRA
Where a parent only has access or visitation rights with his or her child for every other weekend, can the CRA confirm that the parent in question who has, at any time in the year, maintained and inhabited a self-contained domestic establishment in which the parent provided for the child, who was wholly dependent on the parent at that time, may thereby claim the WDPTC in respect of the child In question, assuming that the other conditions are met?
CRA Response
The question of whether a child is fully dependent on a parent at any time of the year is a question of fact that must be determined according to the circumstances of each case and does not depend on the child custody arrangements by themselves. As a general rule, the CRA considers that an individual has a fully dependent child when he or she is responsible for the normal day-to-day activities of raising the child such as ensuring that the child goes to school, has meals, has housing, etc. In other words, the child must live with the parent on the days in question, as opposed to a parent who would only have visitation rights while the child was considered to be living with the other parent.
Thus, the CRA does not consider it absolutely necessary for parents to have legal custody of the child, whether it is exclusive or shared by virtue of a judgment of a competent tribunal or by an agreement between them, so that one of the parents can avail themselves of the WDPTC.
It is important to note that while the Income Tax Act requires that the child be fully dependent on the parent at any time in the year, it is silent with respect to the number of days the child must spend with a parent so that the parent can take advantage of the credit.
For the purposes of our response, we would like to remind the reader that, as mentioned in the question, we have assumed that all other conditions for the application of the WDPTC have been met.
Hugo Gravel
Dave Beaulne
February 2, 2017
2016-067486