2014-0528041E5 AMOUNT FOR THE ELIGIBLE DEPENDANT

Principal Issues: 1. Can a taxpayer claim the amount for the eligible dependant where there is no existing court order or written agreement requiring support payments?

Position: 1. No position taken. General comments only.

Reasons: 1. The facts must be reviewed to ascertain whether the limitation in subsection 118(4)(b) of the Act could deny a claim where the parties have failed to agree on the sharing of personal tax credits.

Author: Dubis, Robert
Section: 118(1)(b)

XXXXXXXXXX
Robert Dubis
2014-052804

August 26, 2014

Dear XXXXXXXXXX:

We are replying to your email of April 14, 2014, in which you asked for our comments regarding whether an individual can claim the amount for an eligible dependent in paragraph 118(1)(b) of the Income Tax Act (the “Act”) for a dependent child.

According to your email, the spouses separated in XXXXXXXXXX and have been living apart and sharing custody of their children on an equal basis since they separated. At the time of writing, there were no written agreements or court orders requiring either spouse to make child support payments. You state that one spouse may have to make a lump-sum payment for support arrears for the XXXXXXXXXX and XXXXXXXXXX tax years, but it is not clear whether these arrears are in respect of child support, spousal support or both.

OUR COMMENTS

This technical interpretation provides general comments about the provisions of the Act and related legislation. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

Generally, where an individual does not claim a spousal tax credit under paragraph 118(1)(a) of the Act, the individual can claim the amount for an eligible dependent under paragraph 118(1)(b) of the Act for a child provided all the conditions of paragraph 118(1)(b) of the Act are met. However, all claims for the amount for an eligible dependent are also subject to additional limitations detailed in subsections 118(5) and 118(4) of the Act.

General limitation - Support Payers

Generally, if an individual is required to pay a support amount (within the meaning assigned by subsection 56.1(4) of the Act) to a current or former spouse or common-law partner in respect of a particular person, subsection 118(5) of the Act prevents the individual from claiming the amount for an eligible dependent under paragraph 118(1)(b) of the Act for that particular person. Subsection 118(5.1) of the Act ensures that one individual can still claim the amount for an eligible dependent for a child when more than one individual is required to pay a support amount in respect of the same child for a tax year.

A support amount is defined in subsection 56.1(4) of the Act. For an amount to qualify as a support amount:

• it must be payable or receivable as an allowance on a periodic basis;
• it must be paid for the maintenance of the recipient, the children of the recipient, or both;
• the recipient must have discretion as to the use of the amount; and
• where the recipient of the amount is the spouse or common-law partner or former spouse or common-law partner of the payer, the parties are living separate and apart because of a breakdown of their relationship and the amount is receivable under an order of a competent tribunal or under a written agreement; or, where the payer is the legal parent of a child of the recipient, the amount is receivable under an order of a competent tribunal in accordance with the laws of a province or territory.

All of these requirements must be met in respect of any payment for that amount to be a support amount.

The Canada Revenue Agency’s general views regarding support payments can be found in Income Tax Folio S1-F3-C3, Support Payments available at www.cra-arc.gc.ca. The discussion pertaining to the requirement that the allowance be paid on a periodic basis may be found in paragraphs 3.43 to 3.47 of the folio. If the lump-sum payment releases the payer from any liability in respect of arrears of maintenance payments, future payments or both, the payment will normally not qualify as a periodic payment for the purposes of the definition of a support amount.

However, a lump-sum payment will not, in and of itself, change the nature of the underlying legal obligation of periodic maintenance payments where it can be identified that:

• the lump-sum payment represents amounts payable periodically that were due after the date of the order or written agreement that had fallen into arrears,
• the lump-sum amount is paid pursuant to a court order and in conjunction with an existing obligation for periodic maintenance, whereby the payment represents the acceleration, or advance, of future support payable on a periodic basis, for the sole purpose of securing the funds to the recipient, or the lump-sum amount is paid pursuant to a court order that establishes a clear obligation to pay retroactive periodic maintenance for a specified period prior to the date of the court order.

It is our view that a lump-sum amount paid pursuant to a written agreement in respect of a period prior to the date of the written agreement would not be considered a support amount for purposes of subsection 56.1(4) of the Act.

Where a specific payment does not qualify as a support amount, then the limitation in subsection 118(5) of the Act does not apply to that payment. However, if the payer is required to pay a support amount in respect of a person for a particular tax year, then subsection 118(5) of the Act could deny the payer a claim for the amount for an eligible dependent under paragraph 118(1)(b) of the Act for that tax year. In this respect, where the payer was allowed to claim the amount for the eligible dependent in an earlier tax year based on the fact that there was no prior requirement to pay a support amount, the payer’s tax return may need to be adjusted.

General limitation - Claims for the Same Person or Domestic Establishment

Under paragraph 118(4)(b) of the Act, where two or more individuals are entitled to make a claim for the amount for an eligible dependent in respect of the same person or the same domestic establishment, and the individuals fail to agree as to who should claim the tax credit, neither individual can claim the credit.

We trust our comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA 
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate

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