It’s that time of year again – income tax season is just around the corner and it could affect your family.
Eligible Dependent Credit (Formerly known as the “Equivalent to Spouse” credit)
Many of our separating and divorcing clients wonder what impact their parenting arrangements could have on their income taxes. We are pleased to provide the following comments in response to one of our clients’ most common questions: will my parenting plan affect my ability to claim the eligible dependent credit?
If you are living separate and apart from your spouse or former spouse, and do not live with a new spouse or common law partner, you might be able to claim the “eligible dependent credit” in respect of one of your children. Your child must reside primarily with you, in a home that you maintain, and must either be under the age of eighteen (18) years or otherwise be dependent upon you due to a physical or mental infirmity. For the 2016 taxation year, the credit amounts to $11,038, less any income your child earned during the year. If your child is over eighteen (18) and dependent on you by reason of a physical or mental infirmity, the family caregiver amount will increase the amount of the credit. The effect of the credit is to reduce the amount of income tax you would otherwise have to pay. The credit is non-refundable, meaning that you will not receive any money back if the whole amount is not used to reduce your income tax liability.
In most cases, you will not be able to claim the eligible dependent credit in respect of a child for whom you paid child support.
Shared Parenting Arrangements
In a shared parenting situation, where your child or children reside with both you and the other parent for at least forty percent of the time throughout the year, the rules on the eligible dependent credit can operate a little differently.
First, only one of you may claim a specific child. If you both claim that child, neither of you will be entitled to the eligible dependent credit. Secondly, the eligible dependent credit cannot be split between you, even if you agree. Finally, it is important to check the wording of any child support obligations in your separation agreement, court order or divorce judgement. If both parents are specified to have a child support obligation, with the higher-obligation parent paying the other parent the difference between the two obligations, the Canada Revenue Agency will allow either one of those parents to claim the eligible dependent credit for a child. If the agreement, order or judgment only refers to one parent having a child support obligation, the paying parent will not be entitled to claim the eligible dependent credit.
Since only one child may be claimed for the eligible dependent credit, separated or divorced parents with more than one child who share equally in the parenting of the children and who both have a child support obligation in respect of the children may simply agree to each claim a different child, each year. In cases where there is only one child to claim, parents in these circumstances will often agree to alternate who may claim the child from year to year.
Review your Orders and Agreements
It is always advisable to periodically review any separation agreements, court orders or divorce judgments you have in place to ensure your stated parenting and support provisions reflect your reality. The wording of your parenting and child support clauses can have a significant impact on your tax situation.
Please note the forgoing discussion is by no means exhaustive and cannot replace legal and accounting advice specific to your circumstances. Please contact one of our experienced family law lawyers for legal advice specific to your circumstances.
D. Shannon Farrell
Legal information appearing in this article and elsewhere on Key Murray Law’s website is intended for informational purposes only and is not intended to substitute for or replace any legal or other professional advice. If you have specific concerns or a situation in which you require legal advice, you should consult directly with one of our lawyers.