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  • After tax costs

    Hi there,
    I was wondering if anyone had any input on this or know what the laws are with regards to child care expenses and tax credits on arts and activity tax credit. I was told that because I pay half of the daycare and half of all extra curricular activities, I should be paying the after tax cost, not the full amount. My ex claims the full amount on everything on her taxes and takes home quite the refund. I have been told by my lawyer that I should be paying the cost to her and therefore that tax saving is suppose to be shared. My ex claims that our separation agreement says that I pay half of daycare and extra curricular activities period which doesn't say that anything about me paying after tax costs or sharing any tax savings. Does anyone know if it has to actually clarify this in our agreement or is this what family law states?

    Also, how does one calculate after tax cost? I have been requested to pay my share of daycare soon, but I have no clue how much I should be paying in terms of after tax amounts.

    Anyone have any ideas or even heard anything on this topic?

    Thank you.

  • #2
    i agree, it should be after tax, if i were you i would pay after tax and let her deal with it.


    • #3
      Family Law Act - O. Reg. 391/97

      Special or extraordinary expenses
      7. (1) In an order for the support of a child, the court may, on the request of either parent or spouse or of an applicant under section 33 of the Act, provide for an amount to cover all or any portion of the following expenses, which expenses may be estimated, taking into account the necessity of the expense in relation to the childís best interests and the reasonableness of the expense in relation to the means of the parents or spouses and those of the child and to the spending pattern of the parents or spouses in respect of the child during cohabitation:
      (a) child care expenses incurred as a result of the custodial parentís employment, illness, disability or education or training for employment;

      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.
      Universal child care benefit
      (4) In determining the amount of an expense referred to in subsection (1), the court shall not take into account any universal child care benefit or any eligibility to claim that benefit. O. Reg. 159/07, s. 2.


      • #4
        ^, thats very good. but if the order sets out the $$ amount then OP is toasted unless he goes back to court.


        • #5
          Pay the costs directly to the provider, get the receipts, claim it on your taxes and claim your share of the benefit yourself.


          • #6
            my agreement says "half the cost of daycare" So, technically I am paying more than half because she is recieving the full tax savings on this. The cost to her is less.

            Also @ blinkandimgone, I don't have my kids as eligible dependants, my ex claims them on hers, even tho we are shared, I am still considered the child support payor. I apparently can't claim even one of my kids. My question is can I still claim daycare expenses for my kids? I'm not sure about this as I am not an accountant. But I would definitely ask the provider for the receipt if I can claim them without them being on my taxes. any one know? thanks


            • #7
              Why are you asking this again. You had a thread entitled "Daycare Expenses when shared custody" Which covered the same topic.

              Just curious.
              Last edited by Beachnana; 01-27-2015, 12:35 AM. Reason: Changed my comment


              • #8
                Perhaps you should offer to send a copy of your agreement to the CRA. Her actions might be tantamount to tax fraud.


                • #9
                  I am asking because my ex came back with the argument that it is not specified in our separation agreement that I pay after tax cost. Therefore I have no legs to stand on with this. My case conference is in may so I want to make sure I have a good argument here. Also I have a daycare expense coming up so I want to know how to calculate after tax costs I don't want to pay her the full amount if she is going to benefit from a tax saving later.


                  • #10
                    I asked our lawyer about this because my partners ex doesnt claim the tax benefits. Lawyer explained that most agreements dont specifically state less the tax benefits because its outlined in the child support guidelines. Therefore you follow what the wording if the FCSG states for costs OUTLINED IN YOUR AGREEMENT. The guidelines state the net cost. If she isnt going to reimburse you the tax benefit she gets then you take off the amount she receives.

                    For instance, my partner pays for summer camp. Under Ontario tax benefits the ex gets $50 back. He would pay his proportionate share less the $50.

                    If she doesnt like it, tell her shes free to speak to a lawyer about it.


                    • #11
                      Your leg to stand on is section 7.3 of the Federal Child Support Guidelines.

                      One problem is that non-custodial parents aren't eligible to claim most things on their taxes (even daycare) although they pay for it. The way this is handled is to pay the after-tax amount. For most people their marginal tax rate is 25-30% so this should be the rate of discount when sharing the expense.

                      EG: Daycare costs $8000, however with a marginal tax rate of 25%, you will get $2000 back at the end of the year when it is claimed. In this case, the parties should only split $6000 of the cost. If splitting in half, you would pay $3000, she would pay $5000 but she gets to keep her $2000 tax refund, equalizing the cost for each family.

                      Assuming people are forthright about their information this is pretty straightforward.

                      However I am unsure what happens when the CP has a marginal tax rate of zero due to lack of employment. It would seem that there is no after-tax discount in this case due to one parties lack of income. Imputed income may be necessary to make this fair to the NCP.


                      • #12
                        It sounds like you get the same argument we do -- its not in the agreement. As our lawyer said, it doesnt matter whats in the agreement, the FCSG trump anything in the agreement to ensure fairness. Same with updating income--if it goes up months before update, you update immediately. If theres tax credits or other subsidies, you claim them in the calculation of cost. Daycare tax benefits are ridiculous thats why the parent with the higher income in a marriage claims them to reduce the tax owing (ditto for property taxes and housing costs). Unfortunately for divorced parents theres this battle.


                        • #13
                          If her income is very low, then she might not be getting back much of a tax break. Plug her numbers (twice, once with and once without daycare/camp costs) into here to see what the difference in tax payable is.
                 - Canadian Income Tax Calculator for 2015 and earlier years includes most deductions and tax credits


                          • #14
                            Currently you are allowed to claim up to $7000 ( this will change for 2015 tax returns to $8000). So if you daycare expenses are $8600 you still only get to claim a refund for $7000 of the daycare costs.

                            So if your daycare costs are higher than $7000 per year it is incorrect to suggest you just deduct of a marginal rate of 30% on all the daycare costs.


                            • #15
                              Essentially what you and your ex are arguing over the definition of "cost". Your ex says the cost is amount invoiced by your daycare provider. You are saying the cost is the actual out-of-pocket expense. You are both technically right, but the courts would side with you more often.

                              Two questions:

                              1. How do you pay your proportional share? Do you reimburse the ex or do you pay the daycare provider directly?

                              2. Do you know your ex's income?

                              If you reimburse your ex and know her income, you could prepare a simple tax return using the daycare deduction and see what kind of return she would get. Then you email your ex advising that you will be reimbursing her $X amount based off of your calculation. You also say that if she doesn't agree, she is free to recalculate. If there is a difference in the amounts, you would need disclosure from her relating to her income and deductions made to confirm her numbers.

                              If you pay the daycare directly, you have two choices. 1) pay the after-tax amount and hope they don't get too pissed or 2) continue to pay the full amount and go after your ex at tax time. Neither is overly appealing, so it is just a matter of picking your poison.


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