Shared parenting time
In shared parenting time arrangements, each parent exercises no less than 40% of parenting time with a child over the course of a year. In these cases, the court has discretion to depart from the Table Amount pursuant to s. 9 of the Guidelines. A set-off amount of child support is determined by calculating the table amount that each spouse would pay to the other if the child were exclusively in the other parent’s care. Instead of both parents paying child support to the other, the higher-earning parent will typically pay the lower-earning parent a “set-off. ”A set-off is the difference between the two table amounts.
While the set-off calculation is quite simple, it is less clear which parent gets to claim certain tax credits such as the Canada Child Benefit (CCB) and the Eligible Dependant Credit. This blog post will explain some of the tax implications of shared parenting time. It will also provide some tips on how separating spouses can take advantage of tax benefits intended to assist low-income families. As each benefit is treated differently according to the Income Tax Act it is important to keep Canada Revenue Agency (CRA) rules in mind when drafting a separation agreement.
Canada Child Benefit (CCB)
The Canada Child Benefit (CCB) is a non-taxable monthly payment that is meant to assist eligible families with the cost of raising children under the age of 18. The benefits are paid over a 12-month period from July of one year until June of the following year. They are recalculated every July based on information from the previous year’s tax return.
According to s. 122.6 of the Income Tax Act, A taxpayer is eligible for child benefits if they are a parent “who primarily fulfills the responsibility for the care and upbringing of the qualified dependent”, or, “is a shared-custody parent in respect of the qualified dependant.”
CCB is split 50/50 with Shared Parenting Regime
If the child shares their time about equally between the parents, then both parents are considered to have shared custody for the purposes of the CCB. If the parents were previously following a different schedule, each parent must immediately notify CRA of the new custody agreement.
CRA will look at each parent’s net income to determine entitlement to the CCB. If a parent is entitled to receive the CCB under a shared parenting schedule, they will receive 50% of what they otherwise would have been entitled to if the child lived with them 100% of the time. The CRA will not split the amount using different percentages or give the full amount to one parent.
When there is a conflict between a separation agreement and provisions in the Income Tax Act with respect to the treatment of income tax benefits, it is federal law that will prevail. This was the case in Perron v. the Queen (2017 TCC 220) where the court denied an applicant mother’s claim for the full amount of the Canada Child Tax Benefit and GST/HST credits in respect of her children. The judge held that the benefits should be shared equally even though the divorce order specified that she and her former spouse shared equal custody and she alone would be entitled to the full benefits for the CCTB.
Eligible Dependant Tax Credit
Definition
The Eligible Dependant Credit is a credit meant to provide tax relief to single taxpayers who are providing financial support to a qualified dependant. A qualified dependant must be wholly financially dependent on the taxpayer. The dependant must either be under the age of 18 or be a dependant by reason of mental or physical infirmity.
Criteria for Eligible Dependant Credit (formerly equivalent-to-spouse credit)
Effective 2022, in order to qualify for the Eligible Dependant Credit a taxpayer must meet all of the following criteria:
- You did not have a spouse or common-law partner or, if you did, you were not living with them, supporting them, or being supported by them. (You cannot claim this amount if you claimed an amount for the year on line 30300 of your return).
- You supported the dependant in 2021;
- You lived with the dependant (in most cases in Canada) in a home you maintained. (You cannot claim this amount for a person who was only visiting you).
In general, the child support payor is not entitled to claim the eligible dependent credit for one or more children on their tax return. Only the support recipient can claim the eligible dependent credit on line 30400 on their tax return.
Shared Parenting Election – All or nothing
However, parties who have a shared parenting time schedule pursuant to section 9 of the Child Support Guidelines and are both paying support can elect which parent will claim the eligible dependent credit.
Keep in mind that unlike the Canada Child Benefit, the Eligible Dependant credit cannot be claimed by more than one individual in the same year for the same child. If the parents cannot agree, neither parent can make the claim.
How to “split” the Eligible Dependent Credit
In amicable separations, lawyers will draft agreements which set out which spouse can claim the credit. Typically, it is the recipient who receives the set-off of the parties’ table amounts rather than both parties paying support to the other. However, if the intention is for the higher income parent (i.e., the parent paying the set-off) to obtain some tax relief by receiving the allocation for the credit, then any order or agreement for child support must provide that both parties are paying support. In other situations, the parties will agree to rotate who can claim the credit so that it is evenly distributed. For example, one parent claims the credit in even-numbered years and the other parent in odd-numbered years. Again, ensure that the agreement states that both parties are paying child support.
Also, as stated above, ensure that you do not claim the credit is you remarry, have a common law spouse, or claim a spousal credit.
If your family is in a shared parenting regime, ensure that you speak to a lawyer who is knowledgeable about the various income tax benefits. Book a consultation with us.