Use of Support Set-Off Calculations Costs Husband His $15,000 Tax Credit
The husband and wife separated in 2011. Based on their respective yearly incomes, they amicably resolved their issues as to child support by way of an agreement and consent order that was filed with the court. They reached an agreement on child support by using a software program which, as the court put it, “introduce[d] various offsetting inputs and devise[d] a final unilateral payment from one spouse to the other.”
The outcome of the calculations was that the husband owed a single payment to the wife, who acknowledged that he was not required to pay further support for a specified time-period. On this income tax return for the year, the husband then went ahead and claimed non-refundable child tax credits of almost $15,000 in respect of their two children.
As the court explained:
All of the usual stressful, difficult and emotional issues for this couple relating to child custody, financial support and raising a family within the constraints of marriage breakdown were resolved in a laudatory, sensible and agreeable fashion. [The husband] testified all issues settled amicably. Lawyers were involved to prepare all documents, undertake court proceedings and ensure all details complied with the parties’ wishes and the law. All seemed to unfold accordingly until the Minister’s reassessment disallowing the 2012 dependent deductions. Understandably, [the husband’s] child support commitment was predicated upon his use of the dependent deductions to reduce his taxable income.
The problem was that the Income Tax Act provision under which the husband had purported to claim that tax credit, namely s. 118(5.1), was an exception to the general rule in another section of the Act that disallows a support-paying person from claiming a tax deduction for dependents in certain stipulated instances. Under the wording of that latter provision, the loss or non-use of the dependent deduction could be prevented only where both parents factually pay to the other an amount for child support.
In this case, since the spouses had essentially used a set-off procedure to come up with a single payment by the husband to the wife, there was no such payment by each of them separately, as the provision required.
Unfortunately, this meant that the Minister of National Revenue disallowed the $15,000 the husband purported to claim under s. 118(5.1) of the Act. Because the husband was the only spouse to pay “a support amount”, the Minister concluded, he did not fall within the exception in s. 118(5.1) and was not eligible.
The husband appealed the Minister’s decision, but was unsuccessful. The court pointed out that the case law precedent was uniform in its interpretation of the Act, and that the fact that the couple had used a set-off mechanism in the course of calculating their child support obligations to each other did not transform the respective and distinct values they used into “a support amount” as that term is used in the Act’s provision. The Act, as worded, did not accommodate for the “expeditious use of a computer software program, the culmination of which is a unilateral payment of a support amount by only one parent to the other.”
Despite this outcome arguably based on technicalities, the court said it had “no alternative but to dismiss” the husband’s appeal, “however sympathetic it may be.”
For the full text of the decision, see:
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