Parents who pay child support and had hoped to claim an eligible dependant credit were disappointed recently when a federal court decision went against them.
Single parents with joint or primary custody are allowed to claim the amount for an eligible dependant for one child on their tax returns. This is often referred to as the Equivalent to Spouse credit and represented more than $1,600 in federal tax savings on the 2012 tax return. If a child’s parents are separated and they have joint custody, only one is permitted to claim the amount for an eligible dependant
If the separated parents with joint custody have two or more children, they may each claim the amount for one eligible dependant, unless one of them is paying child support. According to the existing tax rules, if you make child support payments, you cannot claim the amount for an eligible dependant.
However, there is an exception where both parents pay child support and for that reason neither would otherwise be able to claim it. This exception was recently at issue in the Federal Court of Appeal decision in Verones v. The Queen orders for child support are frequently structured so that each parent is required to contribute a certain amount to support the child, and the contribution from the lower-income spouse reduces the amount the higher-income spouse is required to pay.
Some parents assumed that this meant they fell within the exception. But the appeal court agreed with the Tax Court of Canada decision that since only the higher-income spouse is actually out of pocket for the support, only one of them is actually required to pay support.
This rule made sense prior to 1997 when child support was a tax deduction, so it was reasonable that a parent couldn’t get a double deduction by also claiming the amount for eligible dependant. But once child support payments stopped being a tax deduction, the amount for eligible dependant rule did not change.
Perhaps the government will update its rules again to reflect this current reality, but for now parents making child-support payments cannot claim the eligible dependant amount.
