The availability of tax breaks for children of former spouses can become complex. The above deals only with certain generally available tax benefits. These issues should be taken into account when negotiating between parents to avoid future disputes. Unfortunately, this often requires additional professional advice, adding additional costs and stress to an already unfortunate situation. If there was a change of custody in a year and you both had to pay child support at some point during the year, you will need to agree on who will claim an amount for an eligible dependant for that child. If you can`t agree on who will claim the amount for the child, neither of you can apply. In interpreting the term „equal or nearly equal base,” the Canada Revenue Agency and Canadian courts had previously allowed some flexibility and accepted the 40% guideline as eligible. More recently, however, in Lavrienko v. The Queen (2019 FCA 51) and in Morrissey v.
The Queen (2019 FCA 56), the Federal Court of Appeal clarified what constitutes „an equal or nearly equal foundation”. The courts have held that since it is not always possible to quantify precisely the number of hours a child lives with each parent, any rounding to the nearest integer, which is a multiple of 10 and another integer, is reasonable. Based on these court decisions, only parents with whom a child lives between 45% and 55% of the time would meet the definition of „shared custody parent” and would therefore be entitled to a CCB share. Child support and parenting arrangements often become difficult issues in the event of separation or divorce. Tax benefits and credits related to children`s expenses are another aggravating factor. They are closely linked to financial support and childcare and play an essential role in family budgets. When former couples enter into their custody and financial support arrangements as part of a separation agreement, the issue of eligible dependent loans, child care expense deductions, Canada child benefits and GST credits for children is usually addressed by lawyers from the outset. On other occasions, this source of cash flow is often overlooked. Let`s take a look at how you can maximize benefits and tax credits for parents and what you should consider when negotiating your parental leave and child support. If you have joint physical custody, which means the child lives with each parent at least 40% of the time, you should contact an accountant. Generally, each parent receives half of the benefit for that taxation year. The same is true for the new Canada Child Benefit Young Children Supplement (CCBSBC), which is paid to recipients of Canada child support, although it is paid at a different time.
Although Julie`s income was taken into account in determining the amount each parent was required to pay to the children, it is presumed that only William is required by law to pay support for the purposes of the applicant`s dependant amount. Therefore, William cannot claim an amount for Emily or Eric for an eligible parent. However, Julie can claim an amount for an eligible dependant on line 30400 of her tax return (step 5 – Federal tax) for Emily or Eric if she is otherwise eligible. According to the rating agency, the narrower interpretation of these court decisions could result in several parents sharing parental leave not being able to participate in the benefits to which they are entitled. As a result, new rules have been published to clarify CCB payments to parents with shared custody. In two decisions published on March 27, 2019 (Lavrinenko v. The Queen, 2019 FCA 51 and Morrissey v. Queen, 2019 FCA 56), the Federal Court of Appeal held that the ITA definition is not consistent with the SFCA. Instead, the Court concluded that the ITA required a fairer basis, but acknowledged that accurate quantification was not realistic. The court`s analysis revealed that equal or nearly equal custody requires the child to live with each parent at least 45% of the time. However, that is not the case here, according to the judge.
„School holidays (and summer months) are not unusual events. These four breaks take place regularly each year and together cover a significant part of the year. They allow parents to take care of their school-age children during the school day or to find another form of childcare. The Income Tax Act makes it very clear that it does not allow the other party to make this application under subsection 118(5), which states that a party that provides assistance on behalf of a person to another party cannot declare that person as an eligible dependant. Therefore, a party who pays child allowances for a child is prohibited from claiming that child as a dependant. For shared custody, the CWF provides that child support is determined by calculating the support that each parent would have to pay if the other parent had sole custody of the child. These amounts are then offset against each other. For example, if the mother of the children were to pay her father $1,500 in monthly support if he had sole custody and the father had to pay $1,000 in monthly support if the children`s mother had sole custody, the mother would normally have to pay $500 per month.
Some parents have argued that this calculation means that both parents must pay child support in order for both parents to claim the child (or anyone can ask for one child if there are two or more). The evidence was clear that during the day, on weekdays, when they were on school holidays, Dad basically never took care of the children. Care that would otherwise have been provided by the children`s school was therefore left to the mother. In December and March, the evidence showed that mom was taking care of the children when school was canceled due to Christmas and spring break. In a parenting arrangement where one of the parties has the children in their care and control more than 60% of the time, they are considered the primary parent. In such a scenario, it is usual for the other parent to have to pay child support to the primary parent. Under the Income Tax Act (Canada), the primary parent, as a child support recipient, is entitled to claim a tax credit for that child (or children in cases where there is more than one) that is less than the amount for an eligible dependant. Since the child is in the primary care of that party, the child is considered to be the entitled dependant of that party and not of the other party.
These new rules provide that a parent with shared custody is defined as one of two parents who: Generally, the „qualified support creditor” is a child, but the term may also apply to other dependents. This loan is indexed to inflation, reduced based on the dependant`s income, and can save more than $1,800 in federal taxes in 2019. All provinces have similar provincial loans. The Alberta loan saves more than $1,900 in provincial taxes in 2019. At the hearing, the judge stated that eligibility for the CCB is determined on both a child-to-child basis and on a monthly basis. In reviewing the evidence, the judge concluded that since the couple`s youngest child was not old enough to attend school during the months in question and the child`s daycare was the sole responsibility of the mother on weekdays, the child could not be said to have lived with his father at least 40% of the time. William and Julie share custody of their children, Emily and Eric. Emily and Eric spend 50% of their time with William and 50% of their time with Julie. Based on William and Julie`s income, the court order states that William will have to pay Julie $250 per month for child support.
These questions were created by the wording of the Income Tax Act and the interpretation of these sections by the Canada Revenue Agency. While these are current issues, the reality is that the government has not taken steps to amend these sections to allow the parties to enter into a child support compensation agreement while being able to jointly claim the amount for an eligible dependant. Until they do, parties should always be careful about how they create child support orders in joint parenting agreements. If you choose not to change your tax return, you run the risk of the IRS finding that the same child is declared dependent on two tax returns. The IRS has three years from the time you file the original return to conduct an audit and additional assessments. If you are selected for an audit, the agency will likely require proof that your child lives with you or that you have the consent of the other parent. It seems pretty simple from a child support perspective. Since both parties have shared custody of the child, both parties should be required to pay family allowances to the other, with the difference between the two amounts being compensated for the low-income breadwinner. The Alberta Child and Family Benefit is a tax-free amount paid quarterly to families with children under the age of 18. The combined benefits are a maximum of $5,120 and the maximum basic component depends on the number of children and the amount of your own income.
If you have questions or need help with a child support order, or if you need legal advice or representation in family matters, please contact Mincher Koeman LLP at 403-910-3000 or reception@mincherkoeman.com. However, it becomes a bit more difficult than just making a claim. As explained above, subsection 118(5) of the Income Tax Act does not allow a party who pays child benefits for the child or children to apply for the child or children.