The taxpayer is a party to a 1994 Ontario divorce court judgment stated that the two children would be primarily in the custody of the mother and that the father would be required to pay child support for both children. On audit, he produced a letter signed by both parties and dated in 2006 informing CRA that since 2001, the children had been living periodically with both their mother and father and that the father was now paying support for only one of the two children. Can the taxpayer pay support for one child and claim the s. 60(b) deduction while claiming the wholly dependent person credit pursuant to s. 118(1)(b) for the other child who lived with him occasionally for the 2001 to 2006 taxation years?
The Directorate stated:
It is CRA policy not to accept retroactive agreements.
… We consider the 1994 judgment to be the only valid judgment up to the date of the letter … . That has the effect of allowing a deduction for the support payments actually paid for one of the children, pursuant to paragraph 60(b), for the 2001 to 2005 taxation years. On the other hand, the father cannot claim the wholly dependent person credit for those same taxation years for the other child. Subsection 118(5) of the Act provides that where an individual is required to pay support to the individual’s former spouse for a child and lives separate and apart from her throughout the year, no amount may be claimed as a wholly dependent tax credit under paragraph 118(1)(b) for that child. This is because even if the taxpayer is only paying for one child, the agreement requires payment for both children. And once the taxpayer is required to pay, whether or not this has been done, subsection 118(5) precludes the taxpayer from taking advantage of the wholly dependent tax credit.