Posted on July 17, 2017 · Posted in Blog

Before 2017, it was acceptable to 1) calculate child support payments, 2) indicate that each parent was paying their share, and then 3) conclude that there was a “setoff” payment made from one to the other. But that is no longer allowed.

Canada Revenue Agency tax

It used to be sufficient to allow the parents to allocate the “eligible dependent credit” to the higher income parent. This is no longer acceptable to CRA as per a case titled Harder v. R., 2016 TCC197.

In the Harder v. R case, the parents had two children and they had come to agreement on all issues with respect to their separation and the written consent was filed with the court. Although the consent outlined both parents’ child support obligations in a shared parenting arrangement, and provided that each parent would each claim one of the children as a dependent for the eligible dependent tax credit, the Tax Court disallowed the allocation of the credit because a single setoff payment was paid by the higher income parent to the other.

The Tax Court held that the “combined effect of subsections 118(5) and 118(5.1) [of the Income Tax Act], at a minimum, requires a comprehensive documentary and evidentiary record. Simply put, not only does the written agreement need to state that both parents are paying support to one another, but the parents must now actually do so, creating the necessary “documentary and evidentiary record”.

This is obviously a very awkward two-way exchange of money and it raises fears where one parent pays his/her share, but the other is a dead-beat parent. If the dead-beat parent is the higher earner, the lower income parents would not be getting much needed support but he/she would also be supplementing the dead-beat parent as well.

There needs to be further exploration of this recent ruling but until then, we are at the mercy of the CRA and we know that there is going to be a run on divorce lawyers and mediators requesting that separation agreements be amended accordingly.

Thank you to DivorceMate (Issue #76, Spring/Summer 2017) for raising this red flag.

Who gets the CCTB (Canada Child Tax Benefit?)

This benefit was designed to help families raise their kids but when you divorce, the rules change. Click HERE to see our other article on what Canada Revenue Agency has to say!

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