Principal Issues: (1) Is there an order of application of personal tax credits to reduce the tax payable by an individual in a particular taxation year?
(2) In a particular scenario, can the transfer of the disability tax credit be made to a relation of the person with a disability?
(3) In a particular scenario, could the taxpayer claim the wholly dependent person credit?
Position: (1) Yes. See section 118.92.
(2) A question of fact. In the present case, probably yes.
(3) A question of fact. Probably yes, to the extent that the taxpayer is not claiming a deduction for support payments made to a former spouse or common-law partner.
Reasons: Income Tax Act.
XXXXXXXXXX 2009-030921 François Bordeleau, LL.B. March 18, 2009
Dear Sir,
Subject: Personal tax credit
This is further to your fax of February 6, 2009, in which you requested our opinion on three questions regarding personal tax credits. Your questions are detailed as follows:
(1) With respect to tax credits for interest on student loans, tuition fees and medical expenses, is there an order in which a taxpayer must claim these credits?
(2) Can the unused portion of the disability tax credit of a 20-year-old child placed in an institution with a severe disability be transferred to his or her parents who are only responsible for his or her clothing?
(3) A couple with two children separated on February 1, 2008. Before the separation, Madame’s income was $2,000. Commencing November 1, 2008, Monsieur paid $500 per child per month in support. The couple has shared custody of the children since the date of separation. Can Monsieur claim the wholly dependent person credit for one of the two children for the year of separation?
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act ("Act").
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 of May 17, 2002, it is the practice of our Directorate not to issue written opinions on proposed transactions otherwise than by way of advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that may not apply in full to the situation you have submitted to us.
With respect to your first question, section 118.92 provides an order of application for personal tax credits used to reduce a taxpayer's tax payable for a taxation year. Under this section, a person should first claim the tuition tax credit, then the medical expense tax credit and, if an amount of tax is still payable, the tax credit for interest on student loans.
With respect to your second scenario, the unused portion of the disability tax credit of a person with a disability who is resident in Canada at any time in the year may, in certain circumstances, be transferred by virtue of subsection 118.3(2) to another individual.
The transfer may be made where the individual claims the wholly dependent person tax credit by virtue of paragraph 118(1)(b) or would have been able to claim it if the individual was not married or living common-law, and the disabled person had no income for the year and had attained the age of 18 before the end of the year.
The transfer may also take place where the individual with a disability is the father, mother, grandfather, grandmother, child, grandchild, brother, sister, aunt, uncle, nephew or niece of the individual or of the individual's spouse or common-law partner and the individual is claiming the In-home care of relative tax credit under (118)(1)(c.1)) or the dependant credit (118(1)(d)) or could claim it if the individual was not married and the person with a disability had no income for the year and had attained the age of 18 before the end of the year.
Where more than one individual is entitled to deduct the tax credit transferred by virtue of subsection 118.3(2) in respect of the same disabled person for a particular taxation year, subsection 118.3(3) limits the total deductions for the year to the maximum amount that only one of the individuals would be entitled to deduct by virtue of subsection 118.3(2), if that individual were the only one entitled to the tax credit for that year.
One of the criteria that must be met in order for an individual to claim the credit in paragraph 118(1)(b) or the credit in paragraph 118(1)(d) in respect of a person over 18 years of age who suffers from a mental or physical infirmity is that the person is a dependant of the individual. Generally, a person is dependent on an individual if the individual provides for the individual's basic needs or necessities on a regular and consistent basis.
Although this is usually the case, the dependant does not have to live in the same dwelling as the individual in order for the individual to apply for that credit. Thus, in your scenario, we are of the view that the transfer of the wholly dependent person credit could be made to the father and mother since they meet some of their child's essential needs. However, the total claimed under subsection 118.3(2) by these two parents cannot exceed the maximum amount that only one of the parents would be entitled to deduct under subsection 118.3(2), if that individual were the only one entitled to the tax credit for that year.
With respect to your third question, an individual may claim the wholly dependent person credit if, at any time in the year, the individual satisfies all of the following conditions:
- The person does not have a spouse or common-law partner or, if the person does have one, the person does not live with the spouse or common-law partner, is not self-supporting and is not supported by that spouse or common-law partner;
- The individual was supporting a dependant;
- The individual was living with that dependant (in most cases in Canada) in a dwelling that the individual maintained. The individual cannot claim this credit for a person who was visiting only.
In addition, at the time the individual met all those conditions, the dependant must satisfy one of the following conditions:
- The dependant was one of the individual's parents or grandparents by blood, marriage, common-law partnership or adoption;
- The dependant was a child, grandchild, brother or sister of the individual by blood, marriage, common-law partnership or adoption and was either under 18 years of age or had a mental or physical infirmity.
Even if all of the above conditions are satisfied, the individual cannot claim the wholly dependent person credit if one of the following situations applies to the individual:
- The individual is claiming the credit for a married or common-law partner;
- The person for whom the individual wants to claim the credit is the individual's common-law partner;
- Another person in the same dwelling is claiming the credit (only one claim can be made per dwelling, even if there is more than one dependant in the dwelling);
- The individual is claiming this credit for a child for whom the individual has to pay child support.
However, if the individual was separated from his or her spouse or common-law partner for only part of the year because of a breakdown in their relationship, the individual could claim the wholly dependent person credit only if the individual did not deduct, in computing income, an amount paid to his or her spouse or common-law partner in respect of support payments. In your situation, to the extent that the child would be wholly dependent on the individual at any time in the year (and it would appear that the child is, since the individual has joint custody of his children), we are of the view that the individual could claim the wholly dependent person credit, provided, of course, that the individual does not deduct, in computing his income for the year, an amount paid to his spouse or common-law partner in respect of support payments.
These comments do not constitute an advance income tax ruling and are not binding on the Canada Revenue Agency in respect of any particular factual situation.
Best regards,
François Bordeleau
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.