In a parenting arrangement where one party has the children in their care and control more than 60% of the time, they are considered to be the primary parent. In such a scenario, it is the usual circumstance that the other parent must pay Child Support to the primary parent. Under the Income Tax Act (Canada), the primary parent, as the recipient of Child Support, is entitled to claim a tax credit for that child (or the children in cases where there is more than one), under the Amount for an Eligible Dependent. As the child is in the primary care of that party, the child is considered an Eligible Dependent of that party, and not of the other party.
The Income Tax Act is very clear on not permitting the other party to advance this claim, under section 118(5), wherein it sets out that a party paying support for a person, to another party, cannot claim that person as an eligible dependent. Therefore, a party paying Child Support for a child, is barred from claiming that child as an eligible dependent.
However, this can make things a little more difficult in circumstances where the parties have shared parenting of the child(ren). In a shared parenting scenario, each party has care and control of the child(ren) between 40-60% of the time. In a case such as this, Child Support obligations are governed by section 9 of the Child Support Guidelines. Section 9(a) sets out that in such a case, the Child Support for shared custody should take into account the amounts set out in the applicable tables for each of the spouses. Courts and parties have historically resolved Child Support in shared parenting cases by awarding an offset amount to the lower income parent, to be paid by the higher income parent.
For example, if Pat earns $75,000 per year, and Kelly earns $50,000 per year, and they have shared parenting of their child, then Pat’s Child Support obligation to Kelly would be $642.00 per month and Kelly’s Child Support obligation to Pat would be $405.00 per month. The offset amount would the difference between the two, resulting in a payment of $642-$405 = $237.00 per month, paid by Pat to Kelly.
This would seem fairly straightforward from the perspective of Child Support. As both parties have shared care of the child, both parties should have an obligation to pay Child Support to the other with the difference between the two amount balancing out to the lower income earner.
However, if both parties have shared care of the child, then both parties also have an Eligible Dependent in their household; so, can both parties claim the child on the Amount for an Eligible Dependent? The answer gets a little complicated.
Firstly, in cases where there is one child, the Amount for an Eligible Dependent cannot be split, so the parties cannot claim the child in the same year. This can simply be solved by the parties alternating years in which they claim the child. In cases where there are two children, each party can claim one child in each year, and in that sense, “split” the claim.
However, it becomes a little more difficult than simply advancing a claim. As we set out above, section 118(5) of the Income Tax Act does not permit a party who pays Child Support for the child(ren) to claim the child(ren) as eligible dependents. As a result, using the example of Pat and Kelly, if parties agree to an offset amount, where Pat pays Kelly the amount of $237.00 per month, even though this is calculated taking into consideration Kelly’s obligation to Pat, section 118(5) would prevent Pat from claiming the child as an eligible dependent.
Where this is really relevant is in the wording of the Child Support Order. If the Order sets out that both parties have a Child Support obligation to the other, but includes a provision allowing payment by an offset amount, then Pat will be barred from claiming the child as an eligible dependent.
Rather, this can be resolved in one of two ways:
- Ensure that any Order regarding child support (in a shared parenting arrangement) orders each party to pay the other, and that there is no provision allowing for offset payments, and then actually have each party provide the other with a cheque for their respective amounts owed; or
- Ensure that any Order regarding child support (in a shared parenting arrangement) orders each party to pay the other, and that there is no provision allowing for offset payments, and then the parties can come to a private agreement whereby the higher income earner just pays the offset amount to the other.
If the parties wish to share the Eligible Dependent Amount, what is critical is that parties ensure that their respective Counsel, or the Court granting the Order, stipulate that each party pay the other, and that there is no reference to offset amounts. The reason is, under Section 118(5.1) of the Income Tax Act, if the operation of 118(5) makes it so that neither party could claim the child as an Eligible Dependent, then section 118(5) ceases to apply for that child – meaning both parties are able to claim (or alternate years in the case of a single child).
However, while this may allow the parties to share the Eligible Dependent Credit, it does create potential difficulties.
In the first scenario, if both Pat and Kelly are paying each other, either one then failing to comply with their payment can cost the other a lot more than if an offset scenario was in place. For example, if Pat failed to pay Kelly, then Kelly, who would normally receive a net benefit of $237 per month, is actually losing a total of $642 per month. This is because Kelly isn’t getting the net benefit of $237 from Pat’s payment, yet Kelly is still paying Pat $405, out of pocket. In an offset scenario, if Pat refused to pay child support, Kelly would only be losing out on $237 per month. Alternatively, if Kelly refused to pay Pat, then Pat would be paying $642 per month to Kelly, but not receiving the $405 in return, whereas in an offset scenario Pat wouldn’t have to worry about Kelly not paying and could simply pay $237 to Kelly every month. Certainly, each party could presumably rely upon Maintenance Enforcement to pursue the non-paying party, however, this doesn’t guarantee compliance by the non-paying party, and in the interim, the other party would have to keep paying their obligation in accordance with the Child Support Order.
In the second scenario, where the parties have a private agreement behind the scenes to simply pay the offset amount, there would not be the concerns attached to the above scenario, as, regardless of the Order, the parties would be in an offset arrangement. However, if the party paying the offset amount fails to pay, this creates a number of problems for the party trying to report this to Maintenance Enforcement. Maintenance enforcement will only enforce the terms of the actual Order, not the private agreement between the parties, and in this case, neither party was actually complying with the Order.
These issues have been created by the wording of the Income Tax Act and the interpretation of those sections by the Canada Revenue Agency. While they are live issues, the reality is that the Government has not taken any steps to amend these sections to allow parties to engage in a offset arrangement for child support and still be able to jointly claim the Amount for an Eligible Dependent. Until such time as they do, parties still have to be careful as to how they craft Child Support Orders in shared parenting arrangements.
If you have any questions or need assistance with a Child Support Order, or if you need legal advice or representation with any family law matter, please contact Mincher Koeman LLP at 403 910 3000 or firstname.lastname@example.org.