Our BC shared parenting tax deduction lawyers know there are tax benefits available to married and separated spouses who are raising children. Using tax credits benefits and deductions makes good sense given the high cost of raising children. In today’s blog, Kelowna associates provides our Best* BC Shared Parenting Tax Deduction Tips Lawyers strategies so you don’t get a nasty surprise from CRA after you file your tax return. We are pleased to talk to you at our top rated* Kelowna office.
*(Top Choice Award (2014, 2016, 2017), top rated reviews on Google, Yelp, threebestrated, lawerratingz.com).
Best* BC Shared Parenting Tax Deduction Lawyers
In a shared parenting arrangement, a parent may or may not be entitled to deduct a “wholly dependent person and the child amount” from their taxable income depending on the wording of a separation agreement.
Our skilled family lawyers can help you create a strategy were each parent can claim one child as the equivalent to spouse deduction which will save you hundreds of dollars in tax.
Different courts have come to different conclusions on what you have to do to ensure you get the proper tax for your child in a BC or Calgary shared parenting arrangement. Concerns have also been raised in the House of Commons as set out in this Maclean’s article.
If a separation agreement or court order requires both parties to make a child support payment to the other (and they actually do), then each of the parents may be eligible to claim a deduction. However, if the separation agreement sets off the support payable by each parent against the other, requiring only one parent to make a payment to the other, then the deduction is unavailable to the payor parent. This is terribly unfair and hiring a skilled family lawyer can avoid this hardship.
Our passionate BC Shared Parenting Tax Deduction Lawyers explain that a shared parenting arrangement exists where both parents spend 40% or more of the time with a child. In these situations, usually, each parent is required to pay child support to the other based on his or her income. Sometimes, the parents agree that only one parent makes a payment to the other in an amount that is the difference between their respective child support obligations. If the intention of the parents is to allow each of them to be able to claim the Eligible Dependent Credit either on an alternating basis or to allow them to each claim the credit for one child (when there are more than one children born of the relationship in a shared parenting arrangement) it is absolutely imperative that the proper mechanics and language be used in any agreement or court order relating to the payment of child support.
The foregoing is the result of the complex wording of section 118 (1), (4), (5), and (5.1) of the Income Tax Act and caselaw interpreting those sections.
Our BC Shared Parenting Tax Deduction Lawyers know that generally, a parent who is separated and supports a child who lives with her or him is entitled to a deduction for a dependent child or equivalent to spouse in separation cases
- Under section 118 (4), only one parent is entitled to a deduction in respect of the same child at a given time.
- Where a parent pays child support to the other parent, then the subsection 118 (1) deduction is unavailable as per the exception provided in subsection 118 (5).
- The exception to the exception is when neither parent of a child is entitled to a deduction in respect of that child solely because of section 118 (5) i.e., if neither parent is entitled to a deduction solely because both of them are required to pay child support to the other, then the deduction is available to one of the parents paying support. The case law has made it clear that the exception to the exception does not apply when only parent is required to make a payment to the other – If you are the only parent required to pay support, you are not entitled to the deduction.
Best* BC Shared Parenting Tax Deduction Lawyers Warn You Need Two Cheques Monthly
If your intention is to each be able to make a claim for the Eligible Dependent Credit it is critical that your agreement and or Order stipulate the income for each of you and the full payment based on that income and parenting arrangements to be made by one to the other. It is equally critical that each of you make those payments to the other – The cheques must cross in the mail – be cashed one from the other or you must each send etransfers to the other for the payments.
Our Best* BC Shared Parenting Tax Deduction Lawyers warn you to be sure to discuss the implications of this language as this relates to the enforcement of the child support obligations with your lawyer as well to ensure that you are protected in the event that the other parent is not compliant with making the payment required of them. It will be important that if you are the parent making the lesser payment, that there be language to ensure that you receive the payment from the other parent first and that if that payment is not made as agreed/ordered, that you will not be required to make a payment until such time as you have received the requisite payment from the other parent. You may also want the order/agreement to stipulate a suspension of enforcement of your obligation to pay child support in the event that the other parent is not compliant with his/her obligation to make the support payment to you.
Avoid Disaster Say Best* BC Shared Parenting Tax Deduction Lawyers
In Harder v The Queen, 2016 TCC 197 (CanLII), the Tax Court of Canada held that the father was not entitled to a claimed non-refundable tax credits in respect of the children because he was the only parent required to make a payment. Under a separation agreement, Mr. Harder was required to pay $538.00 to his former spouse. This was the difference between how much he and his former spouse would each have to pay as child support to one other ($894.00 and $356.00, respectively). The Court stated,
“[12] Regrettably, until this factual scenario is placed before the Court, sympathetic appellants, like Mr. Harder, shall have their appeals dismissed. That result will continue to be both unfortunate generally and purposively defeating of the child benefit programme specifically; dependent deductions for a second child shall remain legally unavailable to a unilateral support paying parent.”
In Leinweber v The Queen, the Court precluded the father from claiming the deduction because he was the only parent making child support payments despite the shared parenting arrangement. The Court made its ruling despite the fact that the parties had retroactively amended the separation agreement to meet the requirements of the Act. Although the amendment required each of the parties to pay an amount, it only required the father to make “net payment” to the mother.
Parents who agree to a shared parenting arrangement must be careful to discuss the tax implications of the mechanics of the payment of child support with a family lawyer and their accountant. The language relating to child support provisions of separation agreements may result in different tax treatments even if they have financially identical results in terms of the support payable by one parent to another.
Our BC Shared Parenting Tax Deduction Lawyers can help you plan for proper tax deductibility. Contact us toll free across BC or in Calgary Alberta at 1-877-602-9900.
Our firm is a proponent of shared parenting under the right circumstances and we have a wealth of knowledge on successful shared parenting dispute resolution by negotiation or in court including shared parenting tax strategies related to same.
Call us today at 1-877-602-9900 to help your child grow up to be a happy and productive adult.
