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Should I deduct all of this (or am I being a jerk)?

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  • Should I deduct all of this (or am I being a jerk)?

    Hello,

    I've noticed many people here are good at figuring out financial puzzles - anyone want to have a go at this one?

    Background:

    -ex and I have 50/50 parenting of one daughter

    -I'm the higher earner, though not by much. (We are in the same tax rate, 38%).

    -in our Minutes of Settlement, we agreed that I would pay the first $370 for our daughter's child care every month. This is in lieu of S3 child support (for reasons which made sense at the time, but are not really relevant now). He would reimburse me the half of the costs above $370. (Child care was $420 per month during the school year and $500 per month in July and August).

    -this meant I was making a net transfer to him each month of $185. (For comparison, the setoff would have been about $137 per month).

    -we have a new financial arrangement in the divorce judgment, which is still awaiting signature by the judge, according to which we will each be paying the child care provider separately and in proportion to our income and will share the deductions accordingly, commencing March 1 2013. We also switched to straight setoff payments for S3 on March 1.

    -I paid the full amount to the provider directly; all receipts and cancelled cheques are in my name only.

    -not really relevant background: ex is a garden-variety jerk, prone to throwing tantrums and name-calling, and coming up with dubiously legal nickel-and-dime schemes to get more money out of me. He is also chronically arrears in child care reimbursements and his share of S7. I know this shouldn't really matter, but it colors my judgment when dealing with him.

    Now it's tax time, 2012. I have receipts for $5200 from the after-school care provider. Do I:

    a) claim all $5200 as a deduction on my return, because all the paperwork is in my name?
    b) claim $5200 minus the amount that he reimbursed me for costs-above-$370 last year?
    c) claim a proportion of the $5200 that is equivalent to my proportionate share of our incomes, as it says in our judgment going forwards from 2013?
    d) claim $5200 minus $185 per month, because that was standing in for S3 last year?
    e) Something else?

    My friends say I should go with a), largely because they think he's a jerk. I think option b) seems the most equitable. C) reflects the new agreements in our judgment, though they weren't in force in 2012. D) seems like the most conservative and perhaps safest reading of CRA rules because child support is not deductible, and this was child support going under another name.

    I have a consultation with a tax professional (NOT H&R Block!) set up, but would be interested in what others make of this.

  • #2
    You paid 370 in daycare in lieu of CS... so don't treat it as CS because it's not.

    By my math, your ex paid $25 per month during the school year so that's $250, plus $260 total for July and August.

    He's eligible to claim $510 in daycare expenses.

    You could try and claim all $5200... but he should have proof of paying you for the daycare for his amounts. Plus the minutes of settlement of course. If he claims them you could be reassessed.

    IMO it's always better to be clear and transparent when it comes to money with the ex.

    Comment


    • #3
      Thanks, FightingForFamily. That works for me. I think your math may be a bit off, though. According to our written agreements, the ex should have reimbursed me for child care totalling (10 x $25 [January-June, plus September-December) + (2 x $65 [July-August]), for a total of $380 in 2012. However, he hasn't reimbursed me for the last four month of 2012, so the total amount he actually paid for child care in 2012 is $380-(4 x $25), or $280.

      I'm comfortable with not claiming that $280 and letting him claim it if he wants - that seems equitable and fair (although I will double-check all our written agreements to make sure we didn't agree to something else which is slipping my mind right now).

      I am not looking forward to informing him that this is what I'm doing - he'll have a fit of some sort. However, when it comes down to it he can claim anything he wants, but if he's audited, he'll need my co-operation as all the documentation is in my name only.

      It's hard to walk that line between being the back end of a horse on one side, and a doormat on the other!

      Comment


      • #4
        In case anybody's interested - I just spoke to someone from CRA, laid out the situation, and they told me to treat the child care payments as child care, not child support, even though I made these payments in lieu of child support - in other words, it's all deductible. Good to know.

        Comment


        • #5
          I would suggest this is why CS use always be CS and section 7 as section 7.
          It's far more clear and being clear results in less conflict.

          Comment


          • #6
            You're absolutely right involveddad, and that is why in the divorce judgment (currently before the judge, awaiting signature) we switched to straight table setoff for S3 and proportionate-to-income for S7. At the time, there were reasons why it was preferable for me to pay a third party to guarantee that after-school care would be paid for, but as the situation evolved, it became clearer that simple setoff would ultimately be less trouble.

            Comment


            • #7
              1. If you think your ex is a jerk, you need to read about what many of our exes are pulling. I would pay to have an ex like yours.
              2. The receipts are in your name, you claim them.
              3. The amount your ex paid, you should calculate what his tax return would be if he had the receipts - or -
              4. You should calculate the percentage he paid in child care, and calculate the amount of tax return you received at your tax rate, and determine what percentage of your return should go to him.
              5. You should then remit to him the amount, if you want to do the right thing.

              Comment


              • #8
                Originally posted by Mess View Post
                1. If you think your ex is a jerk, you need to read about what many of our exes are pulling. I would pay to have an ex like yours.
                2. The receipts are in your name, you claim them.
                3. The amount your ex paid, you should calculate what his tax return would be if he had the receipts - or -
                4. You should calculate the percentage he paid in child care, and calculate the amount of tax return you received at your tax rate, and determine what percentage of your return should go to him.
                5. You should then remit to him the amount, if you want to do the right thing.
                I agree with this last statement. It would be nice of you to cut him a receipt for the amount he paid you for daycare, that way he could simply claim that on his. I believe CRA would accept that, but I'm not sure.

                Comment


                • #9
                  Mess, I've read enough on this forum to be amazed by some of the legal nonsense that other people's exes have tried to pull. I've been lucky in that my ex hasn't done the same (or rather, has threatened to but has lost the will to follow through). I will say that he tries to be a good father and I'm fortunate in that, but he's destructive and hostile in other ways.

                  I liked Mess' suggestion of claiming the entire amount on my return but sending him a cheque for the deduction value of his actual contributions to child care, which is the simplest for bookkeeping purposes. Sent ex a note saying "let's settle outstanding S7 expenses", including what he owes me for child care, so I would know how much to write the cheque for. He hasn't paid his S7 reimbursements since June and the amount he owes me is racking up.

                  Got a hostile note back saying he refuses to discuss or pay any S7 until the divorce is finalized. Apparently I have magical powers to make the judge sign or not sign our judgment and can be pressured into speeding the court system along.

                  No S7 reimbursements for child care = no actual contributions to child care = no cheque for value of deduction from me. I'll go ahead and claim the entire amount as my deduction, per CRA. If he wants to square up S7 at some point, I'm still willing to reimburse him the value of his actual contributions, but until that happens, I'm not going to go out of my way to be nice.

                  Comment


                  • #10
                    Just more thing, the amount he actually owes you is net amount of child care paid, which is the after tax amount.
                    Family Law Act ONTARIO REGULATION 391/97 CHILD SUPPORT GUIDELINES
                    Subsidies, tax deductions, etc.
                    (3) Subject to subsection (4), in determining the amount of an expense referred to in subsection (1), the court must take into account any subsidies, benefits or income tax deductions or credits relating to the expense, and any eligibility to claim a subsidy, benefit or income tax deduction or credit relating to the expense. O. Reg. 159/07, s. 2.
                    There is some question of how you are going to calculate the appropriate tax refund amount, which I mentioned above. There is no question of whether you should remit the amount. It is the law.

                    If he is refusing to pay, then he is in arrears for the after tax amount. Because you have 50/50, he really should be paying the daycare his half directly, but this is something you will end up sorting out with your divorce order.

                    Comment


                    • #11
                      Be careful what you wish for - there's been a lot of behaviour on his part that isn't being aired here and now. I do take your broader point, though, and I realize that I'm lucky compared to many people here in that my ex is basically just a garden-variety jerk, rather than a raging lunatic. I also really appreciate the advice from others who haven't been so lucky and who have had to figure all this out at gunpoint, so to speak. However, if you still want to rent my ex, I'm sure we can work out a contract ...

                      Comment


                      • #12
                        Mess,

                        Thank you for pointing that out. It does sound like the right thing to do is to compensate him for the deduction value of his contributions - the question now is what form the compensation takes.

                        Comment

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