Importance of Child Custody Arrangements After A Marriage Breakdown for Tax Purposes

The Income Tax Act (“Act”) allows any individual who are not claiming the spouse/common-law partner tax credit to claim the eligible dependent tax credit if the following conditions are met:

  • Has no spouse or common-law partner;
  • Has a spouse or common-law partner but they do not live together or support each other (e.g., single, separated, divorced, or widowed);
  • Lives in a self-contained domestic establishment with one of the following: Relatives who are wholly dependent on him/her for support; children under 18 or disabled; a Canadian-resident relative under 18 or disabled or; a Canadian-resident parent or grandparent.

Contrary to the spouse/common-law partner tax credit, the eligible dependent tax credit cannot be claimed for a person that is not wholly dependent on the individual for support.  Furthermore, there are other limitations[1] under the Act such:

  • An individual cannot claim the eligible dependent tax credit if he/she already claims the spouse/common-law partner credit.
  • If more than one individual maintains a self-contained domestic establishment and supports an individual, they must agree on who will claim the eligible dependent tax credit or lose the credit entirely.
  • The credit may not be shared between otherwise eligible individuals.
  • An individual will not be entitled to the credit where they are required to pay a “support amount”.

Situation #1 – Separated with 2 children:

A husband and wife are separated and have two children.  Each has custody of one child, and both are required to pay child support to the other based on their wages.

Question: 

Can separated parents each claim the wholly dependent person tax credit for a child they have custody of?

The CRA’s position:

CRA said[2] each parent would be able to claim the wholly dependent tax credit for the child they have custody of (even when the other spouse has custody of another child) if the parent does not pay support for the child he/she claimed the eligible dependent amount.

Situation #2[3] – Joint custody:

Two people have shared custody with a child under 18, who resides with each parent approximately 50% of the time in a year.  Both parents are required to make support payments.

Question: 

Whether each parent would be allowed to claim the eligible dependent tax credit?

 The CRA’s position:

Each parent would be allowed to claim the eligible dependent tax credit every other year, providing all other requirements are met.

As you can see from the situations above, custody arrangements are an important factor to be considered in determining whether eligibility requirements have been satisfied.  Therefore, a well-prepared separation agreement will not only help to clear the air between a marriage breakdown, but may also potentially give the parent(s) an extra tax credit.

[1] S118(4) and (5)

[2] CRA interpretation 2010-0380431E5

[3] CRA interpretation 2012-0443301E5

This article is intended for general information purposes only and does not constitute professional advice.  Income tax law and regulation change frequently and the content on this article may no longer reflect the current state of the law. If you have any specific questions, you should consult a professional services advisor or email us for further advice.