Principal Issues: Is it still possible to share the Canada child benefits between parents who have shared-custody 4 days/3 days?
Position: Yes.
Reasons: Retroactive modification to July 1st 2011 to paragraph b) of the definition of "shared-custody parent" in section 122.6 of the Income Tax Act - see S.C. 2021, c. 23, section 21.
XXXXXXXXXX 2019-081263 Martine Filiatrault
November 5, 2021
Dear XXXXXXXXXX,
Subject: 2019 Conference
Federal Tax Roundtable, October 11, 2019
Question 4, Canada Child Benefit and the concept of shared custody
This is in response to Question 4 posed to us as part of the Federal Tax Roundtable at the 2019 Annual Conference. This question concerns the Canada child benefit in the context of shared custody.
Your context
Section 122.6 of the Act sets out the rules for the payment of the "Canada Child Benefit" (CCB). Unlike the Quebec legislation, which provides for a minimum percentage of custody of 40% to have shared custody for the purposes of the Quebec Family Allowance, the federal legislation specifies instead that the parent must reside with the child on an equal or near equal basis.
This concept of equality or near equality has often been debated in the courts in recent years. In general, there has been a tendency for 40% custody time to be sufficient for shared custody status and thus for half of the CCB.
The CRA makes it clear on its website and in publication T4114 that custody of a child is shared if the child lives in separate residences for more or less equal periods of time. The CRA gives the following examples where a child regularly alternates residence:
- Four days with one person and three days with the other;
- One week with one person and the next week with the other;
- Any other regular alternation.
In the CRA's first example (4 days/3 days), therefore, it appears that the CRA implicitly recognizes a 57%/43% split in custody time as shared custody.
In the past year, a Tax Court of Canada judge in Lavallée, 2018 TCC 213 (a non precedent-setting informal decision), determined that the difference in custody time between each parent should not exceed a ratio of 25%, which set limits of approximately 55%/45% (45 x 1.25 = 56.25). This ratio was not even sufficient to cover the 4/3 day shared custody situation, a situation that appears to be fully recognized by the CRA.
Furthermore, two recent decisions rendered by the Federal Court of Appeal (which are therefore precedent-setting) recognize a test that is quite similar to that of the Lavallée decision. In Lavrinenko, 2019 FCA 51, released on March 27, 2019, the judges ruled that the test for equality or near equality should be done by rounding the custody time to the nearest ten, and if that result was 50%, then the test would be satisfied. The Morrissey decision, 2019 FCA 56, which was handed down on the same day, but by different judges, also recognized this principle.
Thus, according to this approach, an individual would have to have custody of their child for at least 165 days in the year to access CCB (165 days out of 365 days = 45.2%). At 164 days, the time in care would not be sufficient to give a rounded result of 50% (164 days out of 365 days = 44.93%, which rounds up to 40%). On the other hand, a parent who had custody of the child for 201 days or more (55.07% or more) would receive the full benefit.
Ultimately, the application of this test means that the FCA does not even recognize 4/3 days of custody as shared custody. Such custody results in a 57%/43% split, which is outside the test established by these two FCA decisions.
Your Question
Would the CRA be prepared to establish, by administrative policy, a percentage of custody time to qualify as shared custody for the purposes of the CCB, which would, at the very least, ensure that a 4-day/3-day arrangement could continue to qualify as shared custody as has long been the case?
Our Response
The definition of "shared-custody parent" in section 122.6 was amended following Royal Assent to Bill C-30, An Act to Implement Certain Provisions of the Budget Tabled in Parliament on April 19, 2021 and to implement other measures (footnote 1) on June 29, 2021.
The new wording of paragraph (b) of the definition of "shared-custody parent" in section 122.6 provides that the individual must reside with the dependant "at least 40% of the time in the month in which the particular time occurs, or on an approximately equal basis". This new wording is retroactive to July 1, 2011, when the definition of "shared custody parent" was introduced.
Consequently, we are of the view that shared custody on a four-day basis with one person and three days with the other, 4-day/3-day custody, meets the "at least 40% of the time in the month" test set out in the new wording of paragraph (b) of the definition of "shared-custody parent" in section 122.6.
Best regards,
Isabelle Landry
Interim Manager
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 S.C. 2021, C. 23, sect. 21