Andrew Haines has two children under the age of 18 but says he hasn’t been able to claim either one of them on his tax return for years.
Haines, who got separated in 2011, says he’s been audited four out of the last six years and always because he tried to claim one of his children as a dependant.
The Pickering, Ont.,-based dad says he has shared custody of his son, 14, and daughter, 11, through an arrangement that sees the kids divide their time roughly equally between their parents. The couple also agreed that they would each claim one of the children as eligible dependants on their tax return.
However, year over year the Canada Revenue Agency disallowed Haines’s claim, even as it allowed his ex to claim one of the children, he told Global News.
“At this point, I’ve given up,” Haines told Global News, adding that he hasn’t claimed the credit on his 2017 return.
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The eligible dependant tax credit, which can be worth thousands of dollars, is meant, among other things, for single and separated parents, who can’t claim their spouse or partner as a dependant, as other taxpayers do. Parents have to live with their children in a house that they maintain themselves in order to be eligible for the credit, and only one dependant per household can be claimed.
At first glance, Haines appears eligible to claim the credit but part of the reason why he hasn’t been able to get the credit might lie with a recent change in the law.
“It used to be common practice that parents who have their children on an equal 50/50 schedule could each claim one child for the eligible dependant credit, as long as the parent was otherwise eligible,” Jenny Johnston, a family lawyer at Ottawa-based Mann Lawyers, told Global News via email.
However, “a recent case from the Tax Court of Canada, Harder v. The Queen, made clear that if one parent is paying the other child support on the basis of a ‘set-off’ amount, that parent cannot claim the eligible dependent credit,” Johnston added.
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Separated couples with shared custody of the children often arrange child support payments on the basis of a “set-off” between each parent’s obligations, Johnston explained. For example, if Dad has an income of $80,000 per year, he would be required to pay $1,211 in child support for two children, she added. But if the children split their time equally with Mom, who earns, say, $50,000 per year, she would also be required to pay $755 a month in support to Dad. Typically, it’s just easier for Dad to pay the difference.
That is the arrangement Haines says he currently has with his former wife.
The Harder court case has “caused family law lawyers to have to draft agreements where, to use the examples above, instead of Dad just paying the $456 set-off to Mom, Dad actually has to pay the $1,211 and Mom actually has to pay the $755. In that case, CRA will allow each parent to claim the eligible dependant credit for one child.”
Someone with Haines’ more practical child support setup, however, cannot claim the credit.
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Not an isolated problem
Haines’ case is just an example of how easy it is for single and separated parents to stumble when navigating Canada’s tax system. Another widespread problem is proving eligibility for the Canada Child Benefit (CCB), an issue that comes up for many single adults with children around this time of year.
The CCB is a tax-free benefit paid to nearly all parents. Because the amount of the CCB depends on family income, the CRA resets the benefit every year in July based on the income declared for the previous year. And sometimes, as with any benefit and tax break, the agency will ask parents to provide extra paperwork to back up their claims.
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Single and separated parents, though, appear to have a harder time than most in proving their eligibility.
“That is the single most common problem of ordinary people coming into our office,” said David Rotfleisch of Toronto tax law firm Rotfleisch and Samulovitch.
The Taxpayers Ombudsman, a government watchdog that addresses service complaints against the CRA, flagged parents’ difficulties in demonstrating their eligibility for the CCB as a systematic issue in its annual report before Parliament last year.
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The major issues for parents tend to be proving that they’re actually separated and that they have custody of the children, Rotfleisch said. Submitting separation and custody agreements often doesn’t cut it, he noted, adding that taxpayers often have to show things like school letters attesting that the parent in question walks the kids to school and attends parent-teacher interviews.
The CRA wants to make sure that taxpayers aren’t faking a separation in order to dodge taxes, Rotfleisch said. But that also means a separated parent who has been thoroughly vetted once isn’t exempt from future tax reviews, as the taxman checks in to make sure the parties are still separated.
The fundamental problem, according to Rotfleisch, is that “the CRA is geared to collect money, not give money out.”
Asking the federal tax agency to be in charge of distributing benefits, “is almost like having a fox guarding the henhouse.”
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For its part, the CRA told Global News it is “wholeheartedly committed to ensuring that vulnerable Canadians, among them women and children facing abusive situations, get the benefits and credits they are entitled to.”
The agency said it has rolled out an “enhanced process” to have “subject matter experts reach out to CCB benefit recipients by telephone if they fail to respond to requests for information before adjusting their benefits to provide them with assistance.”
So far, though, the share of CBB-related complaints received by the Ombudsman has only increased, going from 8 per cent in fiscal year 2017 to 13 per cent in fiscal 2018.
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As for the eligible dependant tax credit, Johnston said a legal framework that forces parents with shared custody to pay each other child support presents “major problems.”
“Sometimes, one parent is responsible and good at paying and the other is not, so while the kids are actually living in each house 50 per cent of the time, one responsible parent is paying support to the irresponsible parent who may be chronically late with payments, or not paying at all,” she said via email.
And often, she added, the responsible parent does not have the option of simply stopping her or his own payments.
The Canadian Bar Association recently wrote a letter to Finance Minister Bill Morneau on this issue.
Whether Ottawa will step in to untangle the tax web that entraps so many parents remains to be seen.
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