This is a very sensitive and somewhat difficult matter to manage and handle. Family taxes aren’t easy to deal with, there are rules you need to know and regulations you need to follow. That’s why this article here will hopefully help you with your family taxes.
Child Taxes:
Canada Child Benefits:
These benefits are provided by the Canadian Revenue Agency (CRA) free from tax charges to parents in Canada. They are provided for both separated and intact families.
Intact families, which are considered as both parents living together under the same roof with a child, are provided with these benefits and usually, the female parent is considered the primarily responsible parent for the care and wellbeing of the child. However, if the two parents decided to separate, then they have to update the CRA on their marital status so that the correct amount of benefit is divided two both parents. Of course, both of these parents need to provide an equal amount of care for the child or children, where they spend an equal amount of time with each parent. In this case, the benefit is divided equally among the parents on a monthly basis, after analysis and determining their benefit amount.
On another note, a lot of parents compromise in the situation of receiving benefits from the CRA, as both parties agree that one of them will receive the full amount of the Canada Child Benefit. This type of agreement isn’t advised, as much risk will emerge in the process, and the CRA isn’t bound to comply with it. It’s also clearly specified how risky this decision is in paragraph 52 of the Honorable Justice Morrison’s decision in (S.L.) v. A. (B.A.), 2013 NBQB 372. As seen in this situation, most of the benefits that were paid to the parent were redeemed because of complications that emerged during this process.
Child Disability Benefit and Taxes:
This benefit is a tax-free payment that is provided to the families on a monthly basis. It is given to families that have a child under the age of 18 and suffer from a severe and long-term disability in physical or mental functions of the body. Also, the Disability Tax Credit (DTC) is a tax deduction that is available and provided to the same parents with a child under 18 years old suffering from a disability. However, if the parents are required to pay child support then the DTC isn’t available for them.
In the act of applying for a DTC, the parent should clearly fill out the form on behalf of their child. If the parent is approved for a DTC by the CRA and is in receipt of the Canada Child Benefit, then they shouldn’t apply for the Child Disability Benefit for it will be sent by the CRA automatically.
Deduction of Childcare Expenses:
Generally, if the family is intact and the two parents live together with a child, the parent with the lower net income will be the one eligible to obtain childcare expenses on their income tax return. However, in the case of separated parents:
- If the child stays with one parent, then that parent is entitled to the childcare expenses that they paid as a deduction.
- If the child stays at each parent as a shared parenting condition, then each parent is entitled to childcare expenses according to the time the child spent under their supervision and care during that year. Furthermore, the amounts that the parent obtained must be based on the amount paid by the parent as well.
Dependent Tax Credit:
To become eligible for a Dependent (“equivalent-to-spouse”) Tax Credit you need to meet these three criteria during the year at hand:
- You did not have a spouse or common-law partner. Or, if you did have a common-law partner and didn’t support them, or been supported by them, and not living with them as well.
- You supported a dependent
- You lived with the dependent in your house or home.
Moreover, two people can’t obtain the Dependent Tax Credit for the same dependent. So, even if the child was under the care of two parents (shared parenting), each of them can’t claim this credit unless they compromise on a deal. Also, this credit can’t be claimed in situations where a parent is paying child support for the child that they want to claim. It is very complicated as well in the case of shared parenting where both parents may be paying support for the child. In this case, it is advised to reach an agreement by both parties on paper, and state clearly all the payments to reduce complications and failures in the process.
Tax Credit for Tuition:
For reducing income taxes, students that are enrolled in full-time programs are eligible for a non-refundable tuition tax credit can make this a possibility. Also, if the child has no taxes to pay and they haven’t claimed the full amount on the tax reduction, then they can transfer up to $5,000.00 to a parent, and he/she may also decide to carry forward unused fees to a future year. Nevertheless, it’s very important to take into consideration the case in which there’s a separation process, for the Tuition Tax Credit is treated differently in these kinds of circumstances.
Canada Support Taxes:
Spousal Support:
What needs to be made clear first is that Child support isn’t taxable for the person receiving the tax nor is it deductible by the payer. Hens, the Spousal Support is considered deductible by meeting these five criteria:
- A court order or a written agreement covering the specified payments that need to be made to the receiver.
- Both the payer and the receiver live apart and in separate houses due to complications or agreements through the relationship.
- The payment is meant to support the receiver and he/she will do whatever they wish with it.
- The payments are timed periodically and stated in the written agreement or court order.
- The payments are given to the receiver of the support or to the government agency that is supporting this benefit.
The rules that are established for spousal support are much more complicated when they are obtained before a court order or written agreement is reached. In this case, they are made through a third-party member and are paid in a lump sum. These payments can only be deducted, or eligible for deduction if the court order or written agreement states that the previous payments made are included, and they have to be within the given year the agreement was made and written (and the year previous).
To better understand the concept of third-party payments, it is basically the type of payments that are made directly to a mortgage or utility provider. Of course, since the receiver of the payment can’t use them the way he/she wishes, then the court order or written agreement will state that they will include the payment income by the receiver and that the payer can deduct them.
Nevertheless, lump-sum payments aren’t considered deductible payments, as they weren’t paid periodically. However, if this lump sum was paid on time and according to the written agreement or court order, then these payments will be considered as support payments. In other situations regarding the lump sum, there are various techniques and solutions to implement that might provide better results. That is why in this case it’s better to consult a professional.
Legal Fees: if a partner wanted to secure either child or spousal support from a partner by implementing legal fees, then according to line 22100 of their income tax return the legal fees can be deducted. This kind of act can only be implemented during circumstances of separation, divorce, or anything relating to child custody.
Property Taxes
Primary Residence and Capital Gains:
If parties own more than one property as dissolution, it is critical that they deal with the naming of their principal residence so that the subsequent selling of the house does not cause capital gains tax. This should be discussed and decided when preparing the separation agreement.
Changes in the Future
This information and these situations that were discussed in the article are valid as of the 14th of November 2020. There is also an ongoing discussion and some concerns from the Family Law Section of the Canadian Bar Association demanding change to be implemented for the Eligible Dependent Tax Credit. They stress the matter upon the rule of one family member paying child support in a situation of shared parenting. This matter has been discussed clearly in the Tax Court of Canada’s decision in Harder v. Canada, 2016 TCC 197.
Moreover, the Canadian Bar Association’s Family Law Section is also supporting this matter and also demands a change to the documents required for the parents who want to claim Child Benefit. In addition to supporting payers in deducting their legal fees like recipients.
Important Tips:
Parents must fill out their tax files completely and accurately, while also keeping the CRA updated on their marital status and address. These factors are very important to avoid any delays in payments administered by the CRA.