Principal Issues: [TaxInterpretations translation] (1) What options are available to separated parents who have no other spouse and who have joint custody of their two children with respect to the allocation of credits under paragraphs 118(1)(b) and (b.1)?
(2) What would their options be if there were a third child?
(3) Is eligibility for the wholly dependent person credit affected by claiming the child amount?
(4) If a parent separates during the year, must a parent be able to claim the wholly dependent person credit under paragraph 118(1)(b) in respect of his or her child in order to claim the child amount under paragraph 118(1)(b.1)?
(5) If so, if there is shared custody after separation, is it mandatory for one parent to claim the wholly dependent person credit for the child in order to claim the child amount?
(6) Would the outcome be different if one parent had full custody of the child after separation?
Position: (1) Ms. A could claim the credits under paragraphs 118(1)(b) and (b.1) in respect of child X if Mr. B claims the same credits in respect of child Y. Alternatively, Ms. A could claim the credits under paragraphs 118(1)(b) and (b.1) for child Y and Mr. B could claim the same credits for child X. Alternatively, Ms. A could claim the credits under paragraphs 118(1)(b) and (b.1) for one child and the credit under paragraph 118(1)(b.1) for the other, if Mr. B does not claim any credits. The opposite would also be possible for Mr. B if Ms. A did not claim any credits.
(2) Either Ms. A or Mr. B could claim the paragraph 118(1)(b.1) credit in respect of the third child, for whom no paragraph 118(1)(b) credit is claimed.
(3) No, but if two parents wish to agree that one parent should claim the child amount under paragraph 118(1)(b.1), the other parent should not claim the credit under paragraph 118(1)(b).
(4) Yes, since the requirements of subparagraph 1118(1)(b.1)(i) cannot be met to qualify for the child amount because the child did not reside throughout the year with both parents.
(5) No, it is not mandatory for a parent to claim the paragraph 118(1)(b) credit in respect of a child in order to claim the child amount for that child.
(6) No.
Reasons: Interpretation of the Act.
NOTE: November 26, 2009
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Jonquière Tax Services Office Attention: Marie-Ève Duchesne |
Income Tax Rulings Directorate Individual and Benefits Services Pierre-Luc Meunier 2009-032755 |
Child Amount
This is further to your e-mail of June 16, 2009 in which you requested our opinion regarding the application of paragraph 118(1)(b.1) of the Income Tax Act (the "Act").
Unless otherwise indicated, all statutory references herein are to the provisions of the Act.
More specifically, you described two distinct situations on which you would like our comments:
First Situation:
- Two taxpayers, Ms. A and Mr. B, have been separated since 2003 and have never had other spouses;
- Two children, Child X and Child Y, were born of their union, each after 1991;
- Both taxpayers have joint custody of their two children;
- No child support is paid;
- Ms. A and Mr. B both claimed the wholly dependent person credit under paragraph 118(1)(b) (each for one child) and the child amount under paragraph 118(1)(b.1) (each for both children).
First, you wish to know what options are available to them regarding the allocation of the two credits. Second, you wish to know what their options would be in the event that there is a third child.
Third, you understand that eligibility for the child amount is based, in cases where non-spousal parents have shared custody of their children, on eligibility for the wholly dependent person credit. Therefore, you wish to know if the reverse is also true. You gave, as an example of such a situation, both parents agreeing that Ms. A would claim the child amount for her two children if there is no third child. Would Mr. B still be able to claim the wholly dependent person credit for one of his children?
Second Situation:
- Two taxpayers, Ms. C and Mr. D, separated on November 7, 2008 and have no new spouses;
- They have one child, born after 1991;
- No support payments are being made.
With respect to this Situation, you wished responses to the following three questions:
(1) If there is a separation during the year, must the parent be able to claim the wholly dependent person credit under paragraph 118(1)(b) in respect of the child in order to be able to claim the child amount under paragraph 118(1)(b.1)?
(2) If so, considering that Ms. C and Mr. D have shared custody of their child after separation, you wish to know whether a parent must claim the wholly dependent person credit for the child in order to claim the child amount or whether simply being eligible for the wholly dependent person credit is sufficient. You submitted the case where Mr. D claimed the married or common-law partner credit under paragraph 118(1)(a) for Ms. C for the portion of the year before their separation. For that period, you asked whether Mr. D would still be able to claim the child amount, even though he is not able to claim the wholly dependent person credit.
(3) Finally, you wish to know if our interpretation would be different if one of the parents had full custody of the child after separation.
Our Comments
Paragraph 118(1)(b.1) provides the amount that, after being multiplied by the basic rate for the year, is deductible by an individual in computing tax payable under Part I of the Act. This amount is equal to $2,000 (endnote 1) per eligible child under 18 years of age at the end of a taxation year and is granted to the following persons:
(i) in the case of a child who resides with both parents throughout the year, either parent,
(ii) in the case of a child who does not reside with both parents throughout the year, the parent who is entitled to claim the wholly dependent person credit under paragraph 118(1)(b) in respect of the child or who would be entitled to claim such a credit if paragraph 118(4)(a) did not apply to the child for the year.
First Situation
Ms. A and Mr. B do not have a spouse, so neither of their children resides with both parents throughout the year. Therefore, the requirements of subparagraph 118(1)(b.1)(i) cannot be satisfied to entitle either Ms. A or Mr. B to the child amount. In this situation, in order for a parent to be able to claim the child amount, he or she must be entitled to the wholly dependent person credit for a child or could be entitled to it if paragraph 118(4)(a) did not apply to him or her for the year, as required by subparagraph 118(1)(b.1)(ii).
Assuming that, in the situation presented, each parent maintains a self-contained domestic establishment where he or she actually supports his or her children, each parent could claim the wholly dependent person credit under paragraph 118(1)(b) for either Child X or Y, as long as only one parent claims the paragraph 118(1)(b) credit for a particular child (endnote 2) and each parent limits himself or herself to claiming the credit for only one child (endnote 3).
Parents can therefore agree to select one child each for whom they can claim both the credits under paragraphs 118(1)(b) and (b.1). It is not possible for a parent to claim the paragraph 118(1)(b.1) credit for a child if another person is already claiming the paragraph 118(1)(b) credit for that child. If both parents do not agree and each still claims the credit(s) under paragraphs 118(1)(b) and (b.1) for the same child, both parents may be denied the credit(s) by virtue of paragraph 118(4)(b).
Alternatively, Ms. A could claim the credits under paragraphs 118(1)(b) and (b.1) for one child and the credit under paragraph 118(1)(b.1) for the other, if Mr. B does not claim any credit. The reverse would also be possible for Mr. B if Ms. A did not claim any credits.
If there were three children, either Ms. A or Mr. B could claim the credit under paragraph 118(1)(b.1) in respect of the third child.
With respect to your last question, if both parents agree that Ms. A should claim the paragraph 118(1)(b.1) credit for both children, Mr. B should refrain from claiming the paragraph 118(1)(b) credit, since if he did, Ms. A would not be able to claim the paragraph 118(1)(b.1) credit for that child because of paragraph 118(4)(b).
Second Situation
(1) If Ms. C and Mr. D ceased to reside together on November 7, 2008, their child did not reside with both parents throughout the year. Therefore, the requirements of subparagraph 118(1)(b.1)(i) are not met for either parent to be entitled to the child amount.
In this situation, only one parent may claim the amount under subparagraph 118(1)(b.1)(ii) if he or she could otherwise claim the credit pursuant to paragraph 118(1)(b) in respect of the child, or if he or she could claim such a credit if paragraph 118(4)(a) did not apply to him or her for the year.
(2) It is not necessary to claim the credit under paragraph 118(1)(b) for either parent to be able to claim the amount under subparagraph 118(1)(b.1)(ii). On the other hand, if Mr. D claimed the married or common-law partner credit by virtue of paragraph 118(1)(a) in respect of Ms. C, he would not be able to claim the credit by virtue of paragraph 118(1)(b.1).
(3) If one parent had full custody of the child after separation, he or she would still not be eligible for the amount under subparagraph 118(1)(b.1)(i), even if the child was considered to have resided all year with that parent, since he or she would not " ordinarily reside…throughout the … year” with the sole-custodial parent and another parent.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency'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 your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope that these comments are of assistance.
Best regards,
François Bordeleau, LL.B.
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.
ENDNOTES
1 Amount subject to indexing by virtue of subsection 117.1(1). For 2008, it was $2,038.
2 Restriction imposed by the wording of paragraph 118(4)(b).
3 By virtue of section 118(4)(a).