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Posts tagged ‘Canada Revenue Agency’

It’s Tax Time! Some Tips About the Canada Child Tax Benefit

CCTB

It’s Tax Time! Some Tips About the Canada Child Tax Benefit

It’s tax season in Canada, which means that many of us are toiling and agonizing over our personal Income Tax returns, which for most people are due to be submitted to the Canada Revenue Agency (CRA) on April 30, 2015.

Among my clients, questions sometimes arise about how taxes are to be filed after a separation and divorce, especially the question of who is entitled to claim the Canada Child Tax Benefit (CCTB). While I emphasize that it’s important to get solid tax advice that is customized to address your specific scenario, there are a few general and basic tips that I can offer about the CCTB:

• The CCTB is a tax free, monthly government benefit payable to eligible parents for each child who is under the age of 18. It is designed to help families with the cost of raising their children.

• Generally speaking, the CRA determines the amount of eligibility for the CCTB by looking at the prior year’s tax returns for each of the parents.

• When parents have separated or divorced, the provisions of the federal Income Tax Act and its regulations govern the determination of which of the two parents is eligible for the CCTB.

• The baseline test for CCTB eligibility is this: The parent who resides with the child and who primarily fulfills the responsibility for the care and upbringing of the child is the one eligible for the CCTB.

• If due to the breakdown of the marriage or relationship the parents have separated for a period of more than 90 days or have divorced, and where the child spends considerable periods of time with each parent at their respective residences, the CRA will review the circumstances to determine which of them is entitled to the CCTB.

• Among the many factors considered by the CRA in this shared-care situation are the following: 1) whether the child actually resides with both parents; 2) who is primarily responsible for his or her care and upbringing; and 3) whether there is a court order in place.

• In cases where custody of the child is equally shared, both parents may fully satisfy the threshold “resides with” and “primary care” requirements. In such cases, the CRA splits the annual benefit by giving each parent 6 months’ worth of the CCTB (subject to the recipients’ own individual income-based eligibility determinations).

It’s important to emphasize that the Income Tax Act and its regulations contain the governing provisions, definitions, and rules that determine CCTB entitlement in favour of parents generally. The question of precisely how those rules apply to separated and divorced parents can get a little complicated, and even more so where the parents have struck an agreement between them that contains CCTB-related clauses. This is because the contract provisions may contradict or purport to countermand those that are set out in the legislation, or may reflect circumstances that have changed since the agreement was reached. In such cases it is especially important to consult an experienced lawyer for tailored tax advice.

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com

More on the Ins-and-Outs of “Income”

income5

More on the Ins-and-Outs of “Income”

I have written previously, What Counts as “Income” for Child Support? – Top 5 Concepts , about how “income” is an important factor in determining whether and how much child support a court will order one parent to pay to the other. For these purposes, the basic rule is that “income” is simply the amount reported to the Canada Revenue Agency (CRA) for the purposes of determining the annual federal income tax owed.

However – as we have come to expect with family law – some circumstances call for exceptions or differential treatment, designed to allow courts fairly address the special-case scenarios that can arise. Most often, these flow from the unique circumstances of the paying parent’s employment arrangement, or else from special financial circumstances or events that arise from his or her particular employment scenario. For example: Self-employment income is generally the amount that a person reports to CRA as income. However, the court will look at the reasonableness of the reported amount, usually by reviewing the individual’s records and – where there is a corporation involved – by reviewing the financial statements for the previous three years. This review will involve scrutiny of all aspects of the business: the expenses paid, as well as the payment made to employees, consultants and independent contractors.

Partnership income is another type of income that involves specific treatment. A parent who is self-employed but in a partnership – and who is taking a “draw” as partnership salary – will also have to satisfy a court that the money drawn out is reasonable in all the circumstances. If it is not, then a court may impute income to the parent; as before, this usually follows upon the court taking an income “snapshot” from the past three years in order to arrive at a fair figure.

Bonuses and overtime are also subject to a court’s scrutiny; the analysis begins by applying the general rule that such payments received by a parent from his or her employer will be included as income. However, adjustments can be made for exceptional years – for example where there was an unusually high bonus in a single year. Once again, the goal to for the court to make a fair assessment of the paying parent’s overall income despite any uncommon fluctuations.

Severance packages and termination pay are generally included as income as well, but there can be exceptions – not to mention differing treatment in terms of how the received payments are to be distributed across a multi-year period where the severance/termination is designed to serve as replacement income for a longer time-span. Once again, courts will often treat these scenarios on a case-by-case basis.

Do you have questions about whether an unusual or one-time influx of money constitutes “income” for child support purposes? We can help address your concerns.

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com.

Wednesday’s Video Clip: Two necessary evils – know your obligations re: income tax and spousal/ child support

Wednesday’s Video Clip: Two necessary evils – know your obligations re: income tax and spousal/ child support

Income tax: Not a popular concept even at the best of times. But add in the obligations, which arise in the context of paying child or spousal support, and it’s enough to cause heart palpitations in most Canadians.

This is because the Canada Revenue Agency rules relating to how support payments are to be treated are quite complex. To make things more confusing, the federal Income Tax Act has separate rules for spousal support as opposed to child support. Here are the key points:

Spousal Support

Spousal support is generally deductible for the person who is paying, and is taxable as income for the recipient. In contrast, child support is neither deductible nor taxable.

This means that a spouse who is receiving regular spousal support must report the payments as income, and the spouse who is paying it can deduct it off the top of his or her income in the same way that RRSP contributions may be deducted. Lump-sum spousal support does not qualify for this, however, nor does spousal support paid indirectly (for example with one separated spouse agreeing to pay the mortgage payments of the other).

Note that this taxability/deductibility of spousal support payments only applies to payments being made pursuant to a written agreement or court order – informal arrangements made between the separating couple are not eligible for a tax deduction by the paying spouse. Any written agreement of this type must state the date of separation, the terms and exact dollar-amount of the support payments that are to be made, and the date the support payments will commence.

Child Support

Child support payments are usually neither deductible by the parent who is paying them, nor taxable in the hands of the parent who is receiving them. Once again, the payments must be made as a result of a written agreement or court order, which sets out the nature of the support being paid, the amount, and other details. A lump-sum payment, which does not specify that it is made in respect of child support, or that does not delineate between the spousal and child support portions, will not qualify for the deduction. It is therefore important to ensure that any separation agreement or court order makes the terms and amount of the child support payments eminently clear.

Legal Fees and Expenses

The CRA also allows a deduction to the recipient spouse or parent for the costs of obtaining or enforcing a spousal or child support order, which includes legal fees and certain enforcement-related expenses. However, the cost of defending a claim for support, or for the payment of arrears of support, is not deductible.

Get Advice Beforehand

Needless to say, this is just the tip of the iceberg in connection with how spousal and child support payments are treated for tax purposes in Canada. Legal advice is a must. But what most partners on the verge of separation or divorce often overlook is that it’s best to obtain competent legal advice before coming to any agreement as to support. Otherwise, you may fail to foresee the tax ramifications of an informal spousal and child support arrangement, which can result in unpleasant surprises at tax time. Expert, early advice from a lawyer is essential.

We hope you have found this video helpful. If you require further information about income tax and spousal/ child support please give us a call or visit our website at www.russellalexander.com

Two Necessary Evils – Know Your Obligations re: Income Tax and Spousal / Child Support

Two Necessary Evils – Know Your Obligations re: Income Tax and Spousal / Child Support

Income tax:  Not a popular concept even at the best of times.   But add in the obligations which arise in the context of paying child or spousal support, and it’s enough to cause heart palpitations in most Canadians.

This is because the Canada Revenue Agency rules relating to how support payments are to be treated are quite complex.   To make things more confusing, the federal Income Tax Act has separate rules for spousal support as opposed to child support.   Here are the key points:

Spousal Support

Spousal support is generally deductible for the person who is paying, and is taxable as income for the recipient.  In contrast, child support is neither deductible nor taxable.

This means that a spouse who is receiving regular spousal support must report the payments as income, and the spouse who is paying it can deduct it off the top of his or her income in the same way that RRSP contributions may be deducted.   Lump-sum spousal support does not qualify for this, however, nor does spousal support paid indirectly (for example with one separated spouse agreeing to pay the mortgage payments of the other).

Note that this taxability/deductibility of spousal support payments only applies to payments being made pursuant to a written agreement or court order – informal arrangements made between the separating couple are not eligible for a tax deduction by the paying spouse.  Any written agreement of this type must state the date of separation, the terms and exact dollar-amount of the support payments that are to be made, and the date the support payments will commence.

Child Support

Child support payments are usually neither deductible by the parent who is paying them, nor taxable in the hands of the parent who is receiving them.   Once again, the payments must be made as a result of a written agreement or court order, which sets out the nature of the support being paid, the amount, and other details.  A lump-sum payment which does not specify that it is made in respect of child support , or that does not delineate between the spousal and child support portions, will not qualify for the deduction.  It is therefore important to ensure that any separation agreement or court order makes the terms and amount of the child support payments eminently clear.

Legal Fees and Expenses

The CRA also allows a deduction to the recipient spouse or parent for the costs of obtaining or enforcing a spousal or child support order, which includes legal fees and certain enforcement-related expenses.   The cost of defending a claim for support, or for the payment of arrears of support, is not deductible, however.

Get Advice Beforehand

Needless to say, this is just the tip of the iceberg in connection with how spousal and child support payments are treated for tax purposes in Canada.  Legal advice is a must.  But what most partners on the verge of separation or divorce often overlook, is that it’s best to obtain competent legal advice before coming to any agreement as to support.   Otherwise, you may fail to foresee the tax ramifications of an informal spousal and child support arrangement, which can result in unpleasant surprises at tax time. Expert, early advice from a lawyer is essential.

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders.  For more information, visit us at  www.RussellAlexander.com.

 

 

 

Top 5 Things to Know About the Canada Child Tax Benefit

Top 5 Things to Know About the Canada Child Tax Benefit

The April 30th filing deadline will be here soon enough, so it’s time to start thinking about individual income taxes, and all of the various components that go into providing the federal government with a financial “snapshot” for the past year.

For separated or divorcing spouses with children, one of those components is the Canada Child Tax Benefit (CCTB).

The Canada Revenue Agency (CRA) administers the CCTB, which is a monthly, tax-free benefit received on behalf of a child under the age of 18. Its purpose is to assist families with child-raising costs, and its value depends on family income, among other things. The benefit amount is either mailed out by cheque, or – if the recipient requests it – can be direct deposited to an account held with a financial institution.

For parents who are separated or divorcing, the question arises as to how the CCTB is calculated and which of the parents is entitled to receive it. Here are the most important points to know:

1) Eligibility is determined by the Income Tax Act. Once a CCTB application form is filled out by one or both parents, the Act’s stipulated eligibility requirements are applied to determine which parent is entitled to the benefit. The dollar-amount of the CCTB is calculated with reference to the applicant’s income for the previous year (together with the income of any cohabiting spouse or common-law partner, if applicable).

2) Usually, the custodial parent receives the CCTB. Where the child splits time between different residences, the parent with primary responsibility for his or her care receives the CCTB. The CRA will make this determination, after reviewing the circumstances and assessing which parent provides the majority of the child’s care and upbringing. To do so, the CRA will refer to a number of specific legislated factors, and will consider the provisions of any existing court order.

3) If custody is shared equally, then each parent may be entitled to the CCTB for 6 months of the year. The CRA currently does not split the benefit entitlement into periods of less than half-year, no matter what the actual custody and living arrangement may be. Furthermore, for CCTB purposes, spouses are only considered separated if they have lived separate and apart for 90 days or more.

4) Only one parent is eligible for the CCTB in any given month. The monthly CCTB amount cannot be shared or pro-rated between parents, no matter how the child’s actual living arrangements are structured.

5) Eligibility for the CCTB ends when the child turns 18. It may also end if the custody of the child changes, or if the parents fail to meet other eligibility requirements (particularly those relating to family income).

Note that the CCTB received by an eligible parent may include an amount for the Child Disability Benefit (CDB), which is an additional monthly benefit for qualifying families of children with several and prolonged mental or physical impairment. It also incorporates the National Child Benefit Supplement (NCBS), which is the federal contribution to the National Child Benefit, a program aimed at assisting low-income families with children.

For more information on the Canada Child Tax Benefit, see the CRA website at http://www.cra-arc.gc.ca

Additional information on family law issues can be found on our web site  www.russellalexander.com