Child shared custody aka joint custody for CCTB purposes

Tax Topics
1

In my early years as a tax preparer, the issues re eligible dependent and child tax benefit claims became a big post tax season time and maintenance drain for both myself and my clients because I did not have a clear checklist and process for verifying rights, claims, and actual custody. My follow-up time and support times could run into days for a simple tax, low priced tax returns unless I managed documentation requirements and expectations properly. These types of returns were my second most time consuming on-going maintenance issues after proprietorships with GST and taxpayer prepared incorrect income and expense statements.

Now I require the following:-

  1. Proof of separate residences
  2. Proof of marital status
  3. Proof of child custody agreement
  4. Copies of court registered separation and/or divorce agreement
  5. Copies of court registered child custody agreement (each and every version)
  6. Spousal support agreement (if applicable and every version)
  7. Annual, signed list of days each child was in the custody of which parent. This could be set days + variations for vacations, or, an annual list of actual days. Must be signed by both parents or have two third party supporting documentation per CRA benefits audit acceptance.

Without these documents I will not accept any of the above claims.

Please note that in Sprong v The Queen the child custody agreement trumps the actual days on which each parent had custody.

Sprong v. The Queen.
Tax Court of Canada (French Text), November 26, 2019. Neutral Cite: 2019 CCI 261. Court File No. 2018-3195(IT)I. Favreau J. Canada Child Tax Benefits (CCTBs)
— Whether Minister justified in finding that separated taxpayer had shared custody of her children for Canada Child Tax Benefit purposes —

The taxpayer and N separated in September 2012, and the taxpayer was given exclusive legal custody of the couple’s two children, C and M, in a judgment dated April 25, 2013. In fact, however, C and M lived on different days separately with each of the taxpayer and N.

The Minister determined that:

(a) the taxpayer, for certain periods (the “Periods”), was an eligible individual having shared custody of C and M for GST/HST tax credit and Canada Child Benefit purposes; and

(b) as a result, the taxpayer was not entitled exclusively to this tax credit and Benefit for the Periods in issue.

On appeal to the Tax Court of Canada, the taxpayer argued, in part, that she had exclusive legal custody of C and M, and that N merely had access rights to them.

In allowing the taxpayer’s appeal, the Court concluded that she was not a person having shared custody of C and M.

As a result, she was entitled to the entire tax credit and Child Benefit for the relevant Periods.
— ITA s. 122.5 and 122.6.

2

I can’t imagine you’ll have many clients with these claims if this is the information threshold they have to meet. I have clients in the same position. Although it’s possible, CRA has yet to ask a client of mine to prove separate residences or marital status (with most separated persons, these are pretty easily met). The main issues normally come down to custody and support so I normally ask the client for the support/custody agreement and whether they can prove support payments. I stress that the agreement should be registered with CRA.

As for custody, CRA normally relies on the parents to agree on dependent claims and will deny both if they can’t agree. That is normally enough to get them to agree to something.

Perhaps you’re seeing more of these claims in your tax practice than I see (thankfully!). They can be painful to deal with, which would explain your position.

3

I see lots of these unfortunately. The challenge now has become that family law lawyers and the courts don’t specify tax issues consistently in the agreements and if a letter signed by both parents isn’t worded just so, or in any way is different than a court order CRA will disallow the claims even if it what the parents want and agree upon.

4

Family breakdown is my second largest time consumer and usually the most emotionally charged.

It really helps to have forms, checklists, and FAQ’s for all the following:-

Marital Status, Marital Change, Name Change, Child Custody (shared, sole, primary), Separation, Divorce, Spousal Support, Child Support, Child Care and Child Medical Claim, Eligible Dependent Claim, Proof of separate residence.

  • Refer to details above.

  • Some surprises …

  • Spousal Support payments made prior to the registration of the Spousal Support Agreement have been consistently disallowed even when included in the terms of the Spousal Support Agreement.

  • Spouse who works a cook in a remote labor camp disallowed for marital status change and spousal support because he did not have a permanent address outside of his remote labor camp address, and, because, to save the cost of a mail box, he had all his bills sent to his former wife’s address.

  • Spouse abandoned the family and was on the run from Alberta Securities conviction for trading without a license. Spouse was a long term non-filer. No way of proving his location until his incarceration. Wife left holding the bag and unable to claim child benefits and child as eligible dependent , until all agreements were in place because it was impossible to prove that the spouse was no longer residing in the home. This took four years to resolve. When the incarcerated former husband was released from prison the former wife allowed him to live with her and their two children for six months until he was able to re-establish himself in a new location. For this good deed, the wife was considered to be living common law with her legally divorced husband and therefore ineligible to receive any benefit unless and until he filed his tax returns. During the time in which the husband was incarcerated and prior to a child custody agreement being signed the wife had to proof that she had sole and complete control of the children by providing three letters for each and every tax year.

  • Child disability credit transfer issues. Two high needs adopted children. Marital status improperly reported in prior years. Ex husband had applied for the child disability credit. Had written separation agreement preceded date of official move - husband couch surfed for six months prior to obtaining and new address. Date of separation for benefits and eligible dependent set as the LATER OF the date of legal separation or the date living apart. The parents were awarded joint custody but the father abandoned the two children and refused to meet with them. They were high special needs and in need of constant specialized care. The mother needed to prove that she the children were with her all the time. She also need to provide the special payments from Alberta and during the adoption process to prove whether these were general payments or reimbursements. This was complex and difficult to obtain unless you knew that all payments had statements and needed to be reconciled to medical and child care.

  • A spouse who was only common law and never legally married had to prove that she had full custody of her children even though she and the minor children lived in Calgary and the father lived in continental Europe. From the time the mother left continental Europe and during the time she would have been eligible for benefits and eligible dependent claim, the wife had to prove that she had sole and complete control of the children by providing three letters for each and every tax year.

Trickiest one…

Grandmother lied to me that she was fostering a child with whom she had no relationship and that claimed that she was not reimbursed for child care or special needs. In fact she was fostering her grandson under a child protective custody removal order. She doubled dipped - claimed child expenses and was reimbursed for child care and for special needs. Her daughter was an un-recovered drug addict. Her grandson was born while daughter was addicted. The grandson was ADD and high needs. She received over $20,000 per year paid by foster care and by various reimbursement programs. It took me two tax seasons to uncover this information when her child care claims were being post assessment reviewed. Refusal to provide me with foster or guardianship documentation should have been my first clue. While I had a lot of empathy for her situation, it took a long time to obtain the documentation for these payments. There was a lot of hiding, evading, and lying by the tax payer. I could have avoided all these issues if I had stuck to my guns to insist on receiving the birth certificate, the child custody order, and the foster care payment statements. There are at least two statements each year - eligibility and payments. There are often at least two programs - foster care and family benefits. In this case there were also special needs payments by province. It is essential in the case of special needs and/or foster care and/or adoption to understand all the source of payments and whether any of these payments were considered to be reimbursements. This was my first foster care situation so I learned the hard way.

5

I will have to admit you have some pretty interesting clients. The ones I’ve dealt with have some wrinkles but nothing as severe as what you’ve described. I’m glad they go somewhere else to have their tax returns done!

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