PART 1 – The Eligible Dependent Credit
Not everyone thinks about “tax credits” when thinking about parenting time, but when the dust settles, and a schedule is organized, the tax implications of the parenting schedule and the related child support arrangement must be addressed in any thorough separation agreement or minutes of settlement.
In this series of posts, we look at different tax credits affected by relationship breakdowns, specifically the parenting schedule and child support arrangements. First up: the eligible dependent credit!
What is the eligible dependent credit (line 30400)?
The eligible dependent credit is an amount that may be claimed for one “eligible dependant” if, at any time in the year, you met all the following conditions:
- you did not have a spouse or common-law partner, or if you did, you were not living with them, supporting them, or being supported by them;
- you supported the dependant in that tax year; and
- you lived with the dependant in a home you maintained.
Who qualifies as an “eligible dependant”?
An “eligible dependant” must also be one of the following persons by blood, marriage, adoption, or common-law partnership:
- your child, grandchild, or sibling under 18 years of age;
- your child, grandchild, or sibling 18 years of age or older with an impairment in physical or mental functions; or
- your parent or grandparent.
Why does my parenting schedule matter?
The parenting schedule you and the other party decide is in your child’s best interests will dictate the child support arrangements, which will affect each party’s ability to claim the eligible dependent credit. For example:
- If your child lives primarily with you (“primarily” is defined as more than 60% of the time), then you will likely not have a child support obligation for that child (you will still have debts to pay for special expenses – we’ll touch in that in a future post). Instead, the other party will be paying child support to you for the child based on their income. In this circumstance, you may be able to claim the eligible dependent credit for this child, provided you meet the other criteria set out in the Income Tax Act.
- If your child lives primarily with the other party, then you will be paying child support to the other party for your child. In this case, you cannot claim an amount for an eligible dependent for that child.
- If your child lives with both you and the other party in a shared parenting arrangement (“shared parenting” is defined as at least 60/40), then you will likely both be paying child support to each other (see below). In this case, you may be able to claim the eligible dependent credit for a child, provided you and the other party agree as to who will be making a claim. You can arrange to have one party always claim the credit for this child. You can also decide to alternate who claims the child each year. However, if you cannot agree on who will make a claim, then no one can claim the eligible dependent.
- Similarly, if there was a change in parenting time during the year such that both of you were required to make child support payments to the other at some point during the year, you and the other party will have to agree on who will claim the eligible dependent credit amount. If you cannot agree, then neither of you can make this claim.
What if we have multiple children?
Each household is only allowed one claim for the eligible dependent amount, even if there is more than one dependent in the household. However, if you are in a shared parenting arrangement and you are both paying child support to each other for more than one child, then you can agree to each claim one child each year. Again, if you disagree, no one can make a claim.
What do you mean by “paying child support to each other”?
In a shared parenting arrangement, child support is usually payable according to a “set-off” arrangement, whereby the parties calculate their child support obligations based on their incomes, and the party with the higher income pays the difference (or “set-off” amount) to the other party. However:
“[…] the fact that both parents’ income is used to calculate child support is insufficient to establish a requirement that both parents make child support payments. Unless the order or written agreement clearly establishes that both parents are required to pay child support, only one parent is considered to be making child support payments. In this case, the payor cannot claim the amount for the eligible dependent credit.”
In other words, it is important that any separation agreement or minutes of settlement specify your obligation to pay child support to each other so that you can make further arrangements concerning who will claim the eligible dependent credit.
If you have more questions about parenting schedules, child support, and preparing separation agreements that work for your family, please get in touch with one of the family litigation lawyers at Richardson Hall LLP to see how we can help.
*This article contains information but is not intended to provide legal advice.
1- Canada Revenue Agency: https://www.canada.ca/content/dam/cra-arc/formspubs/pub/p102/p102-22e.pdf.