Q: Strange CRA paragraph on "statutory scheme" for child support

[ConcernedDad]

I am confused by the following statement on support payments, shared custody, and eligible dependents ...

Shared custody and the amount for an eligible dependant

"A payment based on a court order or written agreement that calculates child support obligations with reference to a statutory scheme (such as The Federal Child Support Guidelines) but does not obligate both parents to pay child support, is not considered a support amount for the recipient, since there is no legal obligation for the recipient to pay an amount. However, the payer may be considered to have made support payments."

Huh?

The CRA was unable to explain why this paragraph is on this web page or what it means exactly.

Can anyone explain what this paragraph means?

Why do they specifically talk about "reference to a statutory scheme"?

Isn't a child support payment a child support payment regardless of whether it is a fixed amount or a variable amount based on a statutory scheme? Why do they go out of their way to put this paragraph in and make a distinction?

ConcernedDad

[Mess]

"a statutory scheme" means, as it says, the Child Support Guidelines.

What they mean, you can have a court order or negotiated settlement that ignores the Guidelines, for example if there is undue hardship.

So they are specificly referring to a court order or agreement that refers to the Guidelines.

The order does not obligate both parents to pay support. What this means is that the order or agreement, as you say, specifies a fixed amount or one-time calculation. For example, "Mr Smith shall pay amount of $339.99 per month, as based on his and Ms Smith's incomes for 2011."

Why does this matter? Let's word it another way. "Mr Smith and Mrs Smith share custody within the 60/40 threshold of the Guidelines; support shall be calculated according the set-off method; support shall be recalculated yearly according to the previous year's incomes..."

Why is this different? If next year Mrs Smith earns more, she becomes the net payor. The order acknowledges that each pays the other. In the previous wording, it is a fixed order that Mr Smith pays, it simply explains how that amount was determined.

There is a conceptual difference in the two wordings. The CRA paragraph is requiring one type of wording because they are obeying a particular court decision. Reading between the lines, they don't like the decision and don't like having to do this, so they are wording things to close as many loopholes as possible, instead of having a blanket policy for shared parenting situations. In short, they are obeying the court ruling to absolute minimum.

[ConcernedDad]

Thanks for the response Mess.

I've read through your words and the CRA's paragraph many times - but I still am having a hard time understanding the practical implications.

If the order/agreement is worded like your second example, can both parties claim the eligible dependent credit (for a situation where there are two kids, both parties have sufficient incomes to warrant guideline support payments, and the parties agree on how to split the claims)?

The second example you gave:
"Mr Smith and Mrs Smith share custody within the 60/40 threshold of the Guidelines; support shall be calculated according the set-off method; support shall be recalculated yearly according to the previous year's incomes..."

My separation agreement is worded like this:
"

P1. Commencing on <date>, and on the fifteenth day of every month thereafter in advance the Husband shall pay child support to the Wife in the amount of $XXX.YY per month until a terminating event as set out in paragraph 55 below occurs. The parties confirm that the correct method of arriving at the correct amount of support is the “subtractive method” of calculating table support under Section 9 of the Child Support Guidelines. However the Wife does not have any income at the present time.

P2. The parties will review their respective incomes in January of each year
commencing in January of 2013. If there is an adjustment to be made to child
support, the parties will make such adjustment immediately and any adjustments will come into effect on January 1st so that neither party will owe any arrears or reimbursement of overpayment of support to the other. The Husband and the Wife must then each deliver to the other a complete copy of his and her income tax returns as filed with the Canada Revenue Agency together with all attachments and supporting documents and Notices of Assessment by no later than June 15 in each year that child support is payable, commencing June 15, 2013 in order that the parties may double-check and confirm review their respective child support obligations.

"

I think that my agreement is basically the same as your second example.

Is this bad in some way?

Boy, this tax stuff is getting way more complicated than it should be. Even the CRA and my accountant are having trouble with the finer details.

ConcernedDad

[Mess]

Your agreement is similar to my second example and that's not a bad thing, you should be fine with the CRA.

This whole thing went through tax court, they lost, they stick to the letter of the judge's decision and no further. That's why the wording is anal.

The wording of the agreement has to at least imply that each party pays the other.