SEPARATED PARENTS CLAIMING ELIGIBLE DEPENDENT AND CHILD PERSONAL TAX CREDITS – MAKE SURE YOUR AGREEMENT IS PROPERLY WORDED

The case: Letoria v. R (2015) – a decision of the federal Tax Court of Canada

By their Family Court Order, made on consent, Mom and Dad agreed to:

1. shared parenting of their child;

2. calculate what each owed to the other for Table child support (based on their respective incomes from all sources); and

3. declare that the Dad would pay the set-off amount to Mom (because his child support payment was higher at the time).

Note: The Order declared what Table child support amount each owed to the other, but only required the Dad to pay the set-off amount to Mom.

Subsequently, the Dad filed his personal income tax return for that year claiming a personal tax credit for eligible dependents and the child amount, per section 118 of the federal Income Tax Act.

The Tax Court denied his claim for these personal benefits.

Effectively, because the Family Court Order did not expressly indicate that the Mom had to pay child support to Dad, the language in the Income Tax Act denied the Dad the ability to claim these personal tax benefits. A complicated analysis, no doubt, but the Court ultimately determined that the Income Tax Act would have to be changed to allow a shared-parenting parent to claim these benefits, if the approach is to be pay the set-off amount between each party’s child support obligation to the other. 

What does this mean to you? Make sure you obtain qualified legal and accounting advice for your family law matters. Here, if the Dad had done so, he likely could have structured the Court Order to allow him to successfully claim these personal tax credits in future. By not doing so, he not only will not received those credits, but he presumably incurred substantial legal expense in being told he could not do so.

There is often interplay between family law and tax issues that have to be considered and, if they are not, the financial implications can be harsh.

This WARDS PC BLAWG is for general information only. It is not legal advice, or intended to be. Specific or more information may be necessary before advice could be provided for your circumstances.

More information? We’re here to help – [email protected]  www.wardlegal.ca

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