Skip to content

Posts tagged ‘Income Tax Act regulations’

On Income Tax, Support Arrears, and Retroactive Support

Related image

On Income Tax, Support Arrears, and Retroactive Support

Income tax time will be upon us soon enough.  If you are receiving spousal support from your former spouse, you may wonder how those support payments should be treated when it comes time to file your income tax return with the Canada Revenue Agency.

The answer is straightforward:  If you are receiving spousal support from your former spouse or common-law partner, under a court order or written agreement that specifies the amount, frequency and duration of the payments, then those amounts are fully taxable in your hands.  In other words, all those amounts must be reported as “income” on your tax return, and will be taxed accordingly. (This is unlike the situation with child support, which from the recipient’s vantage point is generally considered non-taxable).

Normally, that obligation to declare your spousal support as income on your tax return triggers a corresponding entitlement by your former spouse or partner to claim an equivalent deduction on his or her tax return for those same payments, with some exceptions.

So the short answer, is that spousal support is considered “income.”  But what if the payments you receive now cover support payments that your former spouse should have made in the past?

A pair of recent decisions tackled a narrow – but important – issue relating to how: 1) retroactive support, and 2) support arrears, are to be handled for personal income tax purposes.

In a case from last year called Gonsalves v. Scrymgeour, the court reviewed the law on the tax treatment of retroactive spousal support awards (being those where the support paying spouse is newly-ordered to pay an amount that covers a past period of time during which the other spouse was eligible to receive it). The court confirmed that an award of retroactive spousal support should be reduced, to take into account the benefit of the income tax deduction that the paying spouse would have been able to claim, using the mid-point of the spouse’s respective marginal tax rates.

The more recent decision in Negin v. Fryers addresses support arrears (which are unlike retroactive support because they consist of unpaid amounts that were due under an order made previously).  There, the separated parents had agreed in 2004 that the father would pay child support to the mother in line with Guidelines amounts, together with a set amount of spousal support.   Apparently for some of the years since then, the father overpaid child support by over $52,000, and underpaid spousal support by more than $155,000.  After offsetting these amounts, the mother claimed the father owed just under $103,000 in arrears.

The father claimed – unsuccessfully – that the lump-sum gross amount he now owed the mother in arrears should be “netted down” to account for the different tax treatment of lump sum spousal support, as compared to an order for periodic support.  The wife pointed out – and the court agreed – that it was the policy of the Canada Revenue Agency to allow non-retroactive lump-sum spousal support payments to be deducted by father in the role of the support payor.  The court directed the parents to calculate the amount of child and spousal support owed or overpaid accordingly (as the case may be), in keeping with its specific directions and ruling.

Nobody loves tax time (except perhaps the Income Tax Preparers and Accountants!)  If you have questions about the spousal support you receive, feel free to give our office a call.

For the full text of the decisions, see:

Negin v. Fryers, 2018

Gonsalves v. Scrymgeour, 2017

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 RussellAlexander.com

 

 

The Canada Child Tax Benefit — Which Parent Gets To Claim It?

tax

The Canada Child Tax Benefit — Which Parent Gets To Claim It?

The Canada Child Tax Benefit (CCTB), which is administered by the Canada Revenue Agency (CRA), is a monthly government payment made to parents in respect of any children under the age of 18. This tax-free benefit is intended to assist families with child-rearing costs.

In the traditional scenario involving an intact family, there is a legislative presumption that it is the child’s mother who primarily fulfills the responsibility for primary care; as such the mother is usually eligible for the CCTB, with some exceptions. The monthly CCTB cannot be prorated between the parents.

However, in cases where the parents are separated or divorced (and are not living together), the question of which of them is entitled to use the CCTB can factor into the allocation of custody and child support, and can arise in the context of the negotiation of these issues between the parties.

In a general sense, this determination of which of two separated or divorced parent is eligible for the CCTB will be governed firstly by the relevant legislative rules enacted under the federal Income Tax Act and its regulations. (And note that in this context the parents may be formally married, or else may common law spouses or merely cohabiting. Same-sex spouses also qualify). Among other things, these rules involve consideration each parent’s income, as well as the child’s living arrangements.

Specifically, the parent with whom the child is living – and who is “primarily responsible” for the child’s “care and upbringing” – will be entitled to the CCTB. The question of whether a parent meets this threshold is governed by provisions in the Income Tax Act regulations, and includes consideration of: whether the parent:

• supervises the child’s daily activities and needs;

• maintains a secure environment in which the child lives;

• arranges, and transports the child to, medical care at regular intervals;

• arranges, participates in, and transports the child to educational, recreational, athletic or similar activities

• attends to the needs of the child when he or she is ill;

• attends to the child’s hygienic needs on a regular basis; and

• generally provides guidance and companionship to the child.

Consideration will also be given to whether there is a court order in existence that concerns the child and which is valid in the jurisdiction in which the child lives.
Some additional points to know:

• There is no requirement that the child lives exactly 50% of the time with a parent, to be considered “residing with” the parent.

• In situations involving shared custody, the CRA may allocate CCTB eligibility equally to each parent for six months of each year.

• In cases where there has been a breakdown of the relationship and the parents have either divorced or have been separated for more than 90 days, the eligibility by one or the other parent for CCTB will be determined after a review by the

CRA in cases where the child spends considerable time with each parent. The CRA’s review will consider which of the parents is primarily responsible for the child’s care and upbringing, including consideration of any relevant court orders.

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.