Generally, you cannot claim the eligible dependant credit for a child if you were required to make child support payments in the year. In other words, if a parent is separated and living apart from their current or former spouse throughout the year because of a breakdown in their marriage, and that parent is required to pay support in respect to a particular child, he or she is restricted from claiming a credit for that child for income tax purposes. There are however, some exceptions.
In the year of separation
The parent may claim the dependant credit if he or she has lived separate and apart from their current or former spouse for only part of the year. Generally, this implies that the exception involves the year of separation, and the exception states, if no support payments (either spousal or child) paid to the former spouse or common-law partner were claimed as a deduction in the year of separation, that individual can then choose to claim either the support payments or dependant credit, whichever is more beneficial.
Occasionally, each parent is required to make child support payments in respect of the same child as set out in a court order or written agreement. If this is the case, the rules allow one parent to still claim the eligible dependant credit as long as both parents can come to an agreement on who will make the claim. This court order or written agreement must clearly establish that both parents are required to make child support payments and should detail the years in which each spouse will claim the dependant credit. The agreement cannot net the two amounts and must specify that each individual is responsible for a prescribed amount. If both parties cannot come to a mutual agreement on who will make the claim, then neither can claim the credit.
Two or more children
In the case where there are two or more children, the same rules apply with respect to the court order or written agreement in determining the dependant credit eligibility, (i.e. established payment arrangement of a prescribed amount for each child per parent), and the parents must come to an agreement on who will claim the credit for each child.
You have to deal with many different issues when a separation occurs, including tax considerations. It’s important to properly navigate these complex rules and our tax professionals at Welch LLP are well equipped to ensure that you understand your options and do not receive an unexpected tax bill.
Author: David Zheng, Welch LLP