Child support and tax exemptions

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Some experienced folks here probably have the answers to these questions. My ex wife always used to claim our 2 kids at tax time. Separated in november 08 and for 09 tax year I claimed our 6 yr old son as equivalent to spouse for the 10k exemption. problem came about when my ex didn't want to get on the same page at tax time resulting in discrepacies between our two returns. Anyway long story short CRA says if you pay child support you can't claim them that way. Child support isn't deductible, fair enough, but to lose a 10k exemption stemming from a 720/yr child support doesn't make sense. This is something that should be debated based on the time involved no? We have a 50/50 arrangement. If one of had sole custody I could see the point but not on 50/50 split.

Incidentally, regarding support, I currently pay 290 for support and section 7 expenses. Is the payor/recipient subject to change? At the time I had my kids Thurs evening to Sunday evenings. We had this arrangement for 16 months until it came time to put things in an actual order at which time she then wanted some weekends with them. I was told status quo in this case doesn't apply and I wouldn't be allowed to retain all the leisure time with them so we switched to alternating week on/ week off basis. To accomodate this change and manage the school schedule I quit my job and became self employed in business with my brother. Consequently my income is currently now half of what hers is. I think it only fair that she pay support now, and before anyone crucifies me for being spitefully underemployed, no, this is actually a legitimate attempt at creating a better financial situation for me and hopefully a business for my kids to enter into as well. I expect within two more years to be back at my previous income level and after five exceed it by 50%. Until then the current payment regime is difficult to manage. Is it a fair assessment to say I should maybe be receiving support rather than paying?
 
You've either misunderstood the CRA policy or asked someone who misunderstood your question.

If you have 50/50 parenting you are both entitled to utilize the deductions for the children. However you may not both use the deduction during the same year for the same child. When she applied to use the deduction they had to basicly flip a coin and locked you out.

I would ask you which parent receives the Canadian Child Tax Benefit for the children? You are both entitled to receive it 6 months of the year; you receive an amount based on your income, she receives based on hers. I ask because CRA will default to the mother if you do not file a request to change. If she is thus on file as receiving all year, then it's quite possibly what they based their decision on.

In any case, you do have a right to use the deduction. Some parents will let the higher earner use the deductions and then split the amount refunded since the higher earner will benefit the most. This would be in the children's best interest, there is more money available for them this way. Other parents alternate each year, or one parent will claim for child A and the other parent claim for child B.

Regarding your CS payments, you have the right idea. If you have a court order you must file for a motion to change before change the amount you are paying, or seek for her to pay. If you have no court order and your separation agreement is not registered with the courts then you should give her advance notice by registered letter, and I would recommend you come across as reasonable and offer mediation if she has any disagreement. If she wants to raise a fuss she will take you to court over it; she will make arguments that you are underemployed of course. From your description I would say that you have a sound financial plan but you would have to lay out that plan for a judge as part of your arguments, you must be clear about everything. She will argue, you will argue, that's the way it goes. Certainly there is plenty of case law in your favour, but the onus is still on you to make a sound argument and back it up with facts and statements and a business plan.

If you are not collecting the CCTB then I strongly suggest that you apply for it. Even if you make too much money to receive it (don't we all wish!) apply anyway and this will set the gears in motion for your ability to use the deduction on your income tax. Be aware that if you both keep claiming the CRA may just refuse both of your claims.

If you are going to court for a motion to change the support from you paying to her paying (or perhaps just offer to reduce support to 0 until your business picks up) then seek an ammendment requiring the tax deductions for the children to alternate each year. This is within the CRA rules but again, if you both claim they will just deny the claim or default to mom.
 
Here is a quote from CRA and a link to their explanation (vague though it is).
Note
If you and another person were required to make support payments for the child for 2010 and, as a result, no one would be entitled to claim the amount for an eligible dependant for the child, you can still claim this amount provided you and the other person(s) paying support agree that you will be the one making the claim. If you cannot agree on who will claim this amount for the child, neither of you can make the claim.
Click to expand...
What they are describing here is complicated explanation of the set-off method of support when there is 50/50 shared parenting. The higher earning spouse pays more support; the amount the lower earning spouse is required to pay is subtracted from the amount the higher earning spouse pays. However each parent is in effect still paying support to the other.

This is an updated policy following a challenge in court that the CRA lost on this subject. (I used to have a link to this case but I lost it; I may be able to find it later.)
 
Thank you Mess. We have two children so I think I'll claim one and her the other. Seems the fairest way. I'll also be applying for the CTB. The way I read that note is as long as two people aren't claiming the same child then there isn't an issue, which is fair enough.
 
Sigh...I tried and tried and tried to argue this point with them last year. I eventually gave up and paid them. Guess I'll give it another go this year.

2 kids, 50/50, offset amount of CS. Ex has been consistently making this claim and the claim for children born 1993 and later, for the younger child.

Any advice on how to succeed in arguing this point with them this year? Do I need to hire someone?
 
Supporting documentation...

Supporting documentation...

I've been following this thread, and similar on the subject. This is my first post, and I'm glad that I'm not alone here.

I've got 2 girls of whom I share custody/access 50/50 with my ex. I'm separated, and I have an agreement that says I can claim child A for tax purposes each year while my ex can claim child B. Since I got separated in 2009, I was able to claim one of my daughters as a spousal equivalent (line 305) because I only paid support for part of the year. For 2010 I've paid support the full year based on the offset amount.

My accountant who did my taxes last year said there is no way I am eligible to make the claim, but this thread made me believe there might be hope. I called CRA and they said I should make the claim. That I qualify. However, I can't say I have a lot of confidence with the expertise that answers the phone.

But then I found this: http://taxmentor.ca/av/2010-0368381E5.pdf
Seems there has been some interpretation filed as recent as 2 months ago on the matter (Jan 10, 2011). I don't speak legalese well, but welcome the input of you savvy gentlemen!
 
The link to the .pdf doesn't work for me, I believe you have to log into the site to see it. Perhaps you could quote the relevent paragraph.

In any case here is the explanation directly from the CRA website:

Note
If you and another person were required to make support payments for the child for 2010 and, as a result, no one would be entitled to claim the amount for an eligible dependant for the child, you can still claim this amount provided you and the other person(s) paying support agree that you will be the one making the claim. If you cannot agree on who will claim this amount for the child, neither of you can make the claim.
Click to expand...
The wording is unfortunately convoluted, but what they refer to is a situation where under 60/40 parenting the support is calculated as a set-off of the amount one parent would pay to the other. If you are paying the set-off amount, then in fact the other parent is paying you table amount, but it is deducted from your payment, so both of you are paying and neither of you would have been eligable. In this case, one parent may claim but not both, and you must work it out between you.

Not every accountant or tax software seems to have read this however it is the factual situation.
 
Thanks Mess - you're an asset to this forum!
The link should work if you give it some time. I tried accessing the link from my office PC today and accessed it fine (meaning no cached credentials at play, but a direct link). The TaxMentor.ca site posted a bulletin which paraphrases the referenced link, and here's what it says:

MARCH 2011 EXECUTIVE TAXBRIEFS
NEW LEGISLATION
16. Equivalent to Spouse Tax Credit in Shared Custody​


TI2010-0368381E5
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was issued 2011/01/10 by the Ontario Corporate Tax Division of the Rulings​

Directorate
With families breaking up on a relatively regular basis the scenario posed in this TI must be fairly common.​
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CRA was asked the following questions regarding the equivalent-to-spouse tax credit on line 305:
1. Can each parent claim a child under line 305 as an equivalent-to-spouse? [i.e. Mother claims child
X; Father claims child Y.]
2. If so, does this child claimed as equivalent-to-spouse have to be the same child as claimed under
Child Tax Credit?
3. What documentation would be needed for the above scenario exists?​



CRA's Response:
1. Generally, yes;
2. Yes;
3. Keep any agreements for future queries.​



An individual may claim the equivalent to spouse credit under s.118(1)(b) of the Tax Act in respect of a
wholly dependent person. This credit is generally available in respect of children under the age of 18 who
reside in a home with and are wholly dependent for support on the individual who maintained the home in the year. Prior to 2007, where, in the same taxation year, two parents paid support amounts in respect of a child, neither parent would be eligible for the credit, thus preventing each spouse from claiming a tax
credit in these circumstances. S. 118(5.1) of the Tax Act now corrects this unintended result by providing
that, in such a case, the Tax Act is to be read without reference to subsection 118(5) of the Act. This
ensures that one of the parents may claim the equivalent to spouse credit in respect of a child if they
otherwise qualify.​


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© Copyright 2010 TaxMentor Inc. All Rights Reserved - TaxMentor - The Canadian Tax Resource Centre​



Thanks again for the clarification. What I really wanted to achieve with my post was to provide reference material to support the claim. Seeing as how this statement is from Jan 2011 - I thought it would be useful for people like me who want to be prepared to answer a CRA review.​

If however my legalese is failing me, and this states something entirely different than what you (Mess) have just stated (in easy to follow english) - please advise. And again, if you want to try to access the full bulletin, I believe the link should work.​

Thanks!​
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There's no contradiction there. Can each parent claim a child, yes, but both parents cannot claim the same child.

Does it have to be a child where you are already claiming CCTB? Yes, and both parents in a shared parenting situation may claim the same child six months of each year. However only one parent may claim the dependent deduction.

If there is only one child, the parents may agree on who claims the child, or they may alternate. If both parents claim the deduction, then neither claim will be accepted. The CRA won't mediate this or make decisions, they will just reject both claims.
 
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