Principal Issues: Whether a taxpayer can claim the eligible dependant credit (EDC) pursuant to 118(1)(b) under five hypothetical scenarios.
Position: See responses.
Reasons: See responses.
August 6, 2019
Stasia Gaffney Income Tax Rulings Validation Policies and Procedures Section Directorate Individual Compliance Directorate HEADQUARTERS Collections and Verification Branch Christopher Brennan (613) 822-6323
2018-078570
Eligible dependant credit
This is in reply to your request for our comments on whether a taxpayer can claim the eligible dependant credit (EDC) pursuant to paragraph (b) of the description of B in the formula in subsection 118(1) (hereafter referred to as paragraph 118(1)(b)), under five hypothetical scenarios. XXXXXXXXXX.
Facts and Assumptions
The following are the facts that have been obtained from the information provided related to all of the scenarios:
- Taxpayer A and B are former spouses and no longer live together;
- Taxpayer A and B have a child under the age of 18;
- Taxpayer A and B are not currently married or in a common-law partnership;
- Taxpayer A and B have a court order that states Taxpayer A has sole custody and Taxpayer B is required to pay periodic support amounts for the child;
- Taxpayer C is a blood relative of Taxpayer B;
- Taxpayer C is not married or in a common-law partnership.
The following assumptions have been made to complete the facts of the scenarios:
- Taxpayer B lives in and maintains a self-contained domestic establishment;
- Taxpayer C lives in and maintains a self-contained domestic establishment.
Scenario 1
Two years after the court order takes effect, the child begins living with Taxpayer B on a full-time basis. Taxpayer A and B do not vary the court order. They have a written agreement stating the child lives with Taxpayer B on a full-time basis.
Question 1
Does a court order supersede the facts of a particular situation when determining whether an individual is wholly dependant for support on another individual, for purposes of the EDC under paragraph 118(1)(b)?
Response
The question of whether an individual is wholly dependant on a parent, at any time in the year, is a question of fact to be determined according to the circumstances of each case and does not solely depend on the custody arrangements defined in a Court Order. Therefore, if the particular facts of the case indicate that the child is financially dependent on Taxpayer B such that Taxpayer B provides almost entirely for the person’s well-being it could be determined that the child is wholly dependant for support on Taxpayer B.
Subject to the limitations in subsection 118(4), Taxpayer B may be able to claim the EDC assuming all the remaining conditions of paragraph 118(1)(b) are met and subsection 118(5) does not apply.
Question 2
Will Taxpayer B meet the requirements to claim the EDC if the court order states that Taxpayer B is required to pay support amounts for the child and the court order has not been varied to reflect the written agreement? If the original order did not provide for child support, would Taxpayer B be able to claim the EDC with the written agreement?
Response
With respect to support amounts, as defined in subparagraph 56.1(4), a court order is legally binding until it is varied by a court of competent jurisdiction. Where an individual is required to make child support payments in years following the year of marriage breakdown, no credits under subsection 118(1) will be available to the individual in respect of the child, even in cases where such support payments are not made. Therefore, given the court order requires Taxpayer B to make child support payments and this court order has not been varied to remove the requirement for Taxpayer B to make child support payments, Taxpayer B will not be able to claim a credit under paragraph 118(1)(b) pursuant to subsection 118(5).
If the court order did not require Taxpayer B to make child support payments and the taxpayer otherwise meets the requirements of paragraph 118(1)(b), then Taxpayer B would be able to claim the EDC, subject to the limitations in subsection 118(4).
Scenario 2
Taxpayer A can no longer take care of the child so the child begins to live with Taxpayer C. The court order is not altered; instead Taxpayer A and Taxpayer C have a written agreement. Taxpayer B, as written in the original court order, continues to pay support to Taxpayer A.
Question 1
Does a court order supersede the facts of a particular situation when determining whether an individual is wholly dependent for support on another individual, for purposes of the EDC under paragraph 118(1)(b)?
Response
The response to this question is the same as the response to Question 1 of Scenario 1. Therefore, if the particular facts of the case indicate that the child is financially dependent on Taxpayer C such that Taxpayer C provides almost entirely for the child’s well-being it could be determined that the child is wholly dependant for support on Taxpayer C.
Subject to the limitations in subsection 118(4), Taxpayer C may be able to claim the EDC assuming all the remaining conditions of paragraph 118(1)(b) are met and subsection 118(5) does not apply.
Question 2
Would Taxpayer C be eligible to claim the EDC given that the child is wholly dependent for support on Taxpayer C?
Response
The child must be Taxpayer C’s child, grandchild, brother, or sister, by blood, marriage, common-law partnership, or adoption. The extended meaning of child includes a person that is wholly dependent on that individual for support if, before reaching 19 years of age, the person is or was under the individual’s custody and control, in law or in fact. Therefore, if the particular facts of the case indicate that the child is in Taxpayer C’s custody and control (whether it is the case in law or not) and the child is financially dependent on Taxpayer C such that Taxpayer C provides almost entirely for the child’s well-being it could be determined that the child is wholly dependant for support on Taxpayer C.
Subject to the limitations in subsection 118(4), Taxpayer C may be able to claim the EDC assuming all the remaining conditions of paragraph 118(1)(b) are met and subsection 118(5) does not apply.
Scenario 3
Taxpayer A drops the child off with Taxpayer C and disappears. Taxpayer A and B are unreachable and the child is living with Taxpayer C on a full-time basis and wholly dependent on Taxpayer C for support. The court order stating Taxpayer A has sole custody has not been varied and there is no written agreement between the taxpayers stating the child is living with Taxpayer C on a full-time basis.
Question 1
Is Taxpayer C able to claim the EDC even though there is no variance to the court order and no agreement between the taxpayers stating the child is living with Taxpayer C on a full-time basis?
Response
See the responses in Scenario 2.
Question 2
Would the outcome be different if there was no court order in the first place and Taxpayer A and B just abandoned the child with Taxpayer C?
Response
See the responses in Scenario 2.
Scenario 4
Two years after the court order takes effect, the Canada Revenue Agency receives a copy of a varied court order that states the child is now solely in the care of Taxpayer B. Taxpayer A and Taxpayer B have gone to court to alter the court order for custody, however the amended court order failed to mention any change in the support payments.
Question 1
Is Taxpayer B able to claim the EDC given Taxpayer B is still legally required to pay child support for the child?
Response
It would be a question of law whether the amended court order legally extinguished the requirement for Taxpayer B to pay child support for the child to Taxpayer A. A complete review of the amended court order would need to be performed to determine whether Taxpayer B is legally required to pay child support for the child to Taxpayer A.
If Taxpayer B is legally required to make child support payments, Taxpayer B will not be able to claim the EDC, pursuant to subsection 118(5).
Scenario 5
Three years after the court order, Taxpayer B claims the EDC and submits a third party letter from the child’s school, as well as a letter from a recognized community official that knows the situation stating that the child lives with Taxpayer B on a full-time basis and Taxpayer B now has custody of the child. In the supporting letter, Taxpayer B states that, due to lack of funds, the court order was not changed to reflect the current situation.
Question
Can we accept a supporting letter as proof that an individual is wholly dependent for support on another individual, for purposes of the EDC under paragraph 118(1)(b)? If yes, would Taxpayer B be able to claim the EDC if Taxpayer B is not required to pay child support for the child?
Response
Similar to the responses in the previous scenarios, the question of whether an individual is wholly dependent on one of their parents, at any time in the year, is a question of fact to be determined according to the circumstances of each case and does not solely depend on the custody arrangements, as defined in a Court Order.
Assuming all the conditions of paragraph 118(1)(b) are met, if Taxpayer B is not legally required to pay child support for the child Taxpayer B may be able to claim the EDC, subject to the limitations in subsection 118(4).
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. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.
Yours truly,
Lita Krantz, CPA, CA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislation Policy and Regulatory Affairs Branch