2018-0768651E5 Eligibility for non-refundable tax credits

Principal Issues: Whether separated parents may claim or share the eligible dependant credit and the unused portion of a dependant’s disability tax credit.

Position: Question of fact, see response.

Reasons: See response.

Author: Underhill, Cynthia
Section: ITA: 118(1)(b) and (d), 118(4)(b), 118(5) and (5.1), 118.3(2) and (3)

XXXXXXXXXX                                                                                                                                                    2018-076865
                                                                                                                                                                            C. Underhill
May 14, 2019

Dear XXXXXXXXXX:

Re:   Eligible dependant credit and the unused portion of a dependant’s disability tax credit

We are writing in response to your email dated July 9, 2018, in which you asked whether the following credits may be claimed or shared by both parents in a shared custody arrangement for purposes of the Income Tax Act (the Act):

*     the eligible dependant credit (EDC); and

*     the disability amount transferred from a dependant.

In a telephone conversation (Underhill/XXXXXXXXXX) you confirmed that:

*     You and your wife are separated and continue to live separate and apart, remain unmarried and neither of you have a common-law partner;
*     You and your wife have XXXXXXXXXX who are all under the age of 18, one of whom is diagnosed with a disability and qualifies for the disability tax credit (DTC);
*     All individuals are Canadian residents.

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). 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 a particular transaction 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 70-6R9, Advance Income Tax Rulings and Technical Interpretations.

The Canada Revenue Agency’s (CRA) general views regarding the eligibility to claim personal tax credits in circumstances where support amounts are required to be made by an individual are explained in Guide P102, Support Payments (P102). You can access a CRA document online by going to Canada.ca and typing the document title into the search box in the top right-hand corner of the screen.

EDC

Generally, where an individual does not claim a spousal tax credit the individual may claim the EDC in respect of a wholly dependent person. This credit is generally available in respect of an eligible dependant who resides in a home with, and who is wholly dependent for support on, the individual who maintained the home in the year, and is either a child under the age of 18 or dependent by reason of mental or physical infirmity. Only one claim for the same domestic establishment is permitted.

Paragraph 2.47 in Income Tax Folio S1-F4-C2: Basic Personal and Dependant Tax Credits (for 2017 and subsequent tax years), clarifies the meaning of the phrase ‘wholly dependent for support’, which states:

“Wholly dependent for support on the individual generally means the person is financially dependent on the individual such that the individual provides almost entirely for the person’s well-being. For example, in order for a child to be considered wholly dependent for support on a parent, the parent must be responsible for the usual day-to-day activities of raising the child, such as ensuring the child attends school, and providing necessities such as food, shelter and clothing.”

Whether a child is wholly dependent on a parent for support is a question of fact that can only be determined by examining all of the facts in a given situation.

Further limitations apply if an individual is required to pay a support amount (as defined for purposes of the Act) for a child to a current or former spouse or common-law partner. In this situation, the Act does not allow the individual to claim the EDC for that particular child.

However, sometimes in shared custody arrangements more than one individual is required to make support payments for the same child in a tax year. If both parents are required to make support payments for the same child, the Act provides an exception to allow one individual to claim the EDC for that child, provided they otherwise qualify for the credit. To qualify for the exception, the court order or written agreement must clearly establish that both individuals are required to pay child support payments. The fact that both parents’ income is used to calculate child support is not sufficient to establish a requirement that both parents make child support payments. If both parents do qualify they must agree on who will claim the credit. If the parents cannot agree, neither parent will be allowed to make the claim.

When both parties are not required to make a support payment, the payer does not qualify for the exception and is not entitled to claim the EDC for that child. It is the recipient who would be entitled to claim the EDC, again provided they otherwise qualify for the credit. For more information about this exception, see page 11 of the P102.

Disability amount transferred from a dependant

In certain circumstances the Act provides for the transfer to a supporting individual of all or part of their dependant’s unused DTC. The person with the disability must have been resident in Canada (unless a tax treaty overrides this requirement) at any time in the taxation year and dependent on the individual for support.

The transfer to a supporting individual of all or part of their dependant’s unused DTC may generally only be made where the supporting individual claimed one of the following credits in respect of the eligible person with a disability for the tax year:

*     the EDC; or
*     the Canada caregiver credit (CCC), where the eligible person with a disability is the parent, grandparent, child, grandchild, brother, sister, aunt, uncle, nephew or niece of the supporting individual, or of the supporting individual’s spouse or common-law partner.

A transfer of the unused DTC to the supporting individual is also allowed if the supporting individual could have claimed the EDC or CCC in respect of the eligible person with a disability, if:

*     the eligible person with a disability had no income for the year and was at least 18 years of age at the end of the year, and
*     in the case of the EDC, the supporting individual was not married or in a common-law partnership.

However, the transfer is not available if an amount has been paid for an attendant or for care in a nursing home (other than an amount for a part-time attendant), and a medical expense tax credit has been claimed for the year in respect of that same amount by the individual or any other person.

For more information about your eligibility to claim the disability amount transferred from a dependant, see paragraphs 2.29 to 2.40 of Folio S1-F1-C2, Disability Tax Credit.

Can the unused portion of a dependant’s DTC be shared?

The Act provides that if more than one individual is entitled to claim the unused portion of a dependant’s DTC for the same person, the amount claimed by the taxpayers cannot exceed the total available for transfer.

Where an individual claims an amount for the EDC in respect of a disabled dependent, no other individual (including the other parent) can claim the unused portion of that dependant’s DTC.

Where an individual claimed the CCC in respect of a disabled dependent or could have claimed the EDC or the CCC in respect of a dependant, the Act allows the transfer of that dependant’s unused DTC to be split among the supporting individuals. However, the total amount claimed cannot exceed the maximum amount allowed for that dependant. If the supporting individuals cannot agree on what portion of the credit each will claim for that dependant, the Act allows the Minister to fix the portions.

The following examples have been provided to help you understand the legislation relating to the EDC and the disability amount transferred from a dependant:

*     For example, in a shared custody situation, a minor child, who is diagnosed with a disability and qualifies for the DTC, resides with each parent approximately 50% of the time in a year. Each parent is required to make support payments for the child and otherwise meets the criteria set out in the Act for claiming the EDC in respect of the child. The Act provides an exception that allows either parent to claim the EDC for that child in the taxation year. The parents must agree who will claim the EDC for the child in the taxation year. The parent who claims the EDC for the child in the tax year is entitled to claim the unused portion of that child’s DTC for the tax year. Each parent would be allowed to claim the EDC and the unused portion of that child’s DTC in respect of the child every other year.

*     For example, in a shared custody situation, three minor children (child 1, child 2, child 3 is diagnosed with a disability and qualifies for the DTC) reside with each parent approximately 50% of the time in a year, and each parent otherwise meets the criteria for claiming the EDC in respect of a child. One parent can claim the EDC in respect of child 1 and the other parent can claim the EDC in respect of child 2. Provided each parent could have claimed the CCC for child 3, the Act allows the transfer of the unused portion of the DTC for that child to be split among the parents. However, the total amount claimed cannot exceed the maximum amount allowed for that child. If the parents cannot agree as to what portion of the amount each can deduct for child 3, the Act allows the Minister to fix the portions.

We trust our comments will be of assistance to you.

Yours truly,

Lita Krantz, CPA, CA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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