MEMORANDUM
NOV 10 1988
TO Assessing and Enquiries Directorate Room 8000 400 Cumberland Street
J. Leigh
FROM Specialty Rulings Directorate J.D. Jones 957-2104
SUBJECT: Personal Exemptions
This is in reply to your memorandum of August 9, 1988 and further to our telephone conversation of August 12, 1988 in which you requested our opinion on various aspects of personal exemptions and the applicable comments contained in Interpretation Bulletin IT-191R2 .
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The position in subparagraph 10(c) of IT-191R2 is being retained because it has been the Department's position since prior to 1965 and has since been clarified in new subparagraph 118(1)(a)(ii).
With respect to your understanding of the practice outlined in subparagraph 10(a) of IT-191R2 as it applies to the situations described in subparagraphs 2(a), (b), and (c) of your memorandum, we concur with your understanding.
Concerning the situation outlined at the end of paragraph 2 in your memorandum the facts of the situation may be summarized as follows:
A taxpayer and his spouse separate late in the year with the taxpayer's spouse having sole custody of the four children. The husband is to pay maintenance in respect of the children (properly deductible under paragraph 60(b), (c) or (c.1) of the Act) and has limited or no access to the children after separation. They have agreed to split the claim for personal exemptions in respect of the children for the year of separation in that each spouse intends to claim a married equivalent exemption and an exemption for a dependent child.
In our view, each spouse may claim one child for a married equivalent exemption and one child for an exemption for a dependent child (provided no spouse has a claim in respect of the same child and unless the husband failed to provide support in that year prior to the commencement of the maintenance payments) as the Departmental practice described in paragraph 10 of IT-191R2 would apply, but only in the year of separation. However, it should be noted that new paragraph 118(1)(b) of the Act would, in our view, not allow this treatment and as a result the above position would apply to 1987 and prior taxation years only.
With respect to a taxpayer claiming a deduction under paragraph 109(1)(b) of the Act in the year of change in marital status even though he or she is entitled to a deduction under paragraph 109(1)(a) of the Act in that taxation year, it is the Department's practice for a year in which a change in marital status occurs, to allow the taxpayer the most beneficial deduction of any to which the taxpayer is entitled during the year under section 109 of the Act or under paragraphs 60(b), (c) or (c.1) of the Act. As stated in the above example, the husband may claim one child for a married equivalent exemption under paragraph 109(1)(b) of the Act in the year of change in marital status or he may claim a deduction under paragraph 109(1)(a) of the Act in respect of his spouse but not both.
With respect to the question raised in paragraph 3 of your memorandum, the Department's position as outlined in paragraph 10(a) of IT-191R2
may apply in the year of remarriage provided it is not in respect of a spouse or child who the taxpayer is entitled to a deduction for alimony or maintenance payments under paragraph 60(b), (c) or (c.1) of the Act. This position may be applicable where a taxpayer has sole custody of one of his children while paying alimony and maintenance payments deductible under paragraphs 60(b), (c) or (c.1) of the Act in respect of his former spouse and another child. In the year of remarriage, if the taxpayer found it more advantageous to claim an exemption in respect of his child which he has sole custody of under paragraph 109(1)(b) of the Act rather than his spouse under paragraph 109(1)(a) of the Act, the Department's practice as outlined in paragraph 10(a) of IT-191R2 would, in our view, be applicable. This position may also be applicable in the unlikely event that an individual is separated, divorced and remarried in the same taxation year.
Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch