Family Law Blog

Important Tax Information for Parents with Shared Custody

tax returns


A recent Canadian Tax Court Case has important implications for parents with shared custody and the way child support is paid and collected.  The decision in Harder v. The Queen changes the way parents with shared custody must deal with child support.   It is likely that most parents with shared custody will have to change their child support arrangements and the Family Responsibility Office will have to change its procedures to prevent running into tax problems.


How Shared Custody, Child Support and Taxes Used to Work

The Supreme Courts set the rules for child support in shared custody in it decision in Contino v. Leonelli- Contino.  At paragraph 49 of that decision, the Supreme Court said that the starting point for calculating child support in shared custody, which persists unless it results in an unfair sharing of the costs of raising the children, is that the parents calculate what each of them would owe under the Child Support Guidelines Tables and set those amounts off against each other.  In the majority of shared parenting situations, consistent with the Supreme Court’s decision, parents agreed to use set-off the child support amount such that the parent with the higher income made a child support payment that reflected the set off amount.


Part of the basis of this set-off approach is that each parent gets some of the tax benefits associated with caring for the children in a shared-custody situation. The amount of child support under the tables takes into account the tax deductions/benefits available to parents for having children.


The CRA’s policy on tax credits and benefits for parents in shared custody situations states that when parents share custody of their children, they must rotate the benefits/credits for the children such that each parent gets the tax benefits for the children for six months of the year.  That policy was last updated in July 2015. 


As  a result of this policy, parents with shared parenting set off support against each other and each claimed half the tax benefits for the children for whom they had shared custody.


The Significant Changes to Child Support to Avoid Tax Problems

judge-in-courtroon

According to Justice Block in his tax court decision in Harder v. The Queen,  the Courts, Family Arbitrators, Family Mediators, Family Lawyers and separated parents did not properly consider the Section 118(5) of the Income Tax Act in making the above described child support arrangements.  That section of the Income Tax Act states that a person who has to pay support for a dependent cannot claim tax deductions or benefits with respect to that dependent.  Children are dependents.  So, that means that, notwithstanding the Canada Revenue Agency saying that benefits must be rotated in shared custody situations, a parent paying child support may not claim those benefits. 


Based on the Supreme Court’s decision in Contino about setting off support in shared parenting, and the CRA’s policy that benefits be rotated in shared parenting, it seemed logical to interpret the “set-off support” paid in shared custody situation as parents notionally paying each other, but simplifying the logistics of that by having the payments flow only one way - from the higher income parent to the lower income parent.  This is how child support orders and agreements were written and how the FRO processed support.


However, in Harder v. the Queen, Justice Block stated that interpretation was wrong under tax law.  Where parents set-of child support amounts, this resulted in only one parent receiving support and one parent paying support.  Under the wording of section 118(5) of the Income Tax Act, the parent paying support could not claim the benefits and credits in relation to the child or children for whom that parent was paying child support. 


According to the decision in Harder v. the Queen, the correct  thing to do is for each shared custody parent to actually pay the full table child support amount to the other parent, so that the full table support is flowing both ways.  The Family Responsibility Office should collect the full child support amount payable by each parent and pay it to the other parent, essentially having the support between the parents cross paths as doing a “set off” will have negative tax consequences for at least one of he parents.


There are some obvious practical problems with the approach set out in Harder v. the Queen.  For example, a lower income parent may not have the funds available to make the support payment until receiving the support from the higher income parent.   That would cause one of the support payments to “bounce” and one parent to “over pay” by not getting the support back to which he or she is entitled.   It will also dramatically increase the cost for the Family Responsibility Office, and the support collection agencies in other provinces, to enforce child support in shared parenting arrangements.  


However, as Justice Block points out, this complicated and tedious approach to child support in shared parenting is required by section 118(5) of the Income Tax Act and it is the way things must be done until Parliament changes the law.


Ontario Family Law Podcast

32 - How to Change a Support Order

Justice Block’s decision in Harder v. the Queen means that most parents with shared custody will have to change what they are doing for child support.  It may also mean that they have to change their child support order or separation agreement to reflect how the Income Tax Act requires child support be paid so that both parents can get the tax benefits related to raising the children.  The Ontario Family Law Podcast and the video below give some general advice about how to change a support order or agreement.  However, the rules for separation agreements require that separated parents and spouses consult with a family lawyer, and they will probably want speak to a lawyer who understands both family law and tax law to make sure the agreement or court order does what they expect. 


Obviously, parents who have just separated and who are planning on sharing custody of their children will want to make sure that their child support order or separation agreement complies with the requirements to maximize the tax relief for them.  Again, they should contact an excellent family lawyer to make sure that happens.


Guide to the Basics of Ontario Family Law (book)

To learn even more about child support, get a copy of this easy to understand book on the basics of Ontario Family Law as a paperback, or as a $9.99 e-book for KindleKobo, or iPad/iPhone/Mac.  You may also want to listen to this podcast or watch this video. You can also use the search on the right to find lots more articles about marriage and divorce.    

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Available on Kobo
Available in the iBookstore


Obviously, there can be a lot of money involved in child support cases  and only could really help a child with his or her needs (or not).  You need to get the help of a lawyer immediately to avoid financial hardship.  Contact Certified Specialist in Family Law (and author of the book above), John Schuman, by emailing him, calling 416-446-4036, or using the contact form below.  We answer all inquiries promptly and we can arrange for you to come in quickly for a consultation (charged at a reduced hourly rate).  


Many thousands of people get family law assistance from this website everyday.  If you have found this page useful, please share it on your social network using the Facebook, Twitter, LinkedIn and Pinterest buttons at the bottom of the page.


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Do I Have to Pay Half of My Child’s Dental Bill on Top of Child Support - Even Though my Ex Has Benefits?

child visiting the dentist


Separated Parents do have to share some expenses for their children on top of base child support. Section 7 of the Child Support Guidelines sets out what expenses parents have to pay in addition to the monthly child support payments.  Those expenses are called “Section 7 Expenses” or “Special and Extraordinary Expenses. It is important to understand Special and Extraordinary Expenses as parents frequently pay to much or too little because they do not understand how the Child Support Law works in relation to children’s expenses.  

 

Health care and dental expenses are ones that may be shared on top of child support.  To figure out how much extra is owing, it is important to look at the wording of the Child Support Guidelines. Section 7(1)(c) says that the expense that may be reimbursed are:

 

(c) health-related expenses that exceed insurance reimbursement by at least $100 annually, including orthodontic treatment, professional counselling provided by a psychologist, social worker, psychiatrist or any other person, physiotherapy, occupational therapy, speech therapy, prescription drugs, hearing aids, glasses and contact lenses;

 

So, parents only share the portion that exceeds insurance reimbursement.  Further, section 7(3) says:

 

(3) Subject to subsection (4), in determining the amount of an expense referred to in subsection (1), the court must take into account any subsidies, benefits or income tax deductions or credits relating to the expense, and any eligibility to claim a subsidy, benefit or income tax deduction or credit relating to the expense. 

 

In order to figure this out, you are entitled to see whether the other parent has submitted the expenses to his or her (or a new spouse or partner’s) insurance, and what reimbursement he or she has received. 

 

Ontario Family Law Podcast

11 - Child Support's Special and Extraordinary Expenses

12 - How Step Parents and Grandparents Can Have to Pay Child Support

In addition, if your ex can claim the uninsured portion of the dental expenses as medical expenses on his or her taxes, you only have to share the net cost after taking into account the tax credits available to your ex. (If he or she choses not to claim them, that is not your fault.)   You need your ex’s tax return to figure out the amount of the deductions or credits, which is why section 24.1 of the Child Support Guidelines requires parents to exchange tax returns annually.  If the expenses have been partially paid by a benefits plan, you will see that by the reduced amount claimed on the tax return. 

 

Also, if your ex’s new partner or new spouse is claiming the children through a benefits plan, then it may be that he or she is treating the children as his or her own.  If the new partner stands in place of a parent, then the Child Support Guidelines may require that the expense be shared 3 ways.  Listen to this podcast for more on that


Child support law gets complicated and people frequently make mistakes that result in significantly too much child support or way too little child support being paid.  To make sure child support is right in your circumstances, it is often worthwhile to speak to a family law lawyer.  Certified Specialists in Family Law are a good choice as they are recognized for their expertise on these issues.  If you are the parent seeking or enforcing support, any legal fees you pay may be tax-deductible.   Contact Certified Specialist, John Schuman, by calling 416-446-5847 or emailing him.

Guide to the Basics of Ontario Family Law Best Seller
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To learn even more about child support, special and extra-ordinary expenses, retroactive child support, and all the possible claims for support, as well as most other family law issues,  get a copy of this best-selling easy-to-understand book on the basics of Ontario Family Law as a paperback, or as a $9.99 e-book for KindleKobo, or iPad/iPhone/Mac.  You may also want to listen to this podcast or watch this video. You can also use the search on the right to find lots more articles about marriage and divorce.

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Guide to the Basics of Ontario Family Law Available on Kindle


Many thousands of people get family law assistance from this website everyday.  If you have found this page useful, please share it on your social network using the Facebook, Twitter, LinkedIn and Pintrest buttons at the bottom of the page.


Contact Us: 

 

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