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.
