I recently worked on a client who needed his 2014 tax return filed but was involved in a complex situation concerning his separation agreement with his ex-wife. They had split up in 2013 and had both children (under at the age of 18) living with both parents separately 50% of the time. The CRA rejected the claim because they did not have the definitive proof that this was the case. Since the actual separation agreement did not take effective until 2015, what could be done to make a legitimate claim for the 2014 tax year? What evidence are they looking for?
The first step is to determine what someone can claim (line 305) for an eligible dependant. The CRA website states:
In the case of both children living with both parents equally throughout the year, one parent can claim one eligible dependant while the other can claim the other. IF THE CRA DOES NOT HAVE THE INFORMATION OF WHO LIVES WITH WHO, THEY CAN DISREGARD THE CLAIM COMPLETELY FOR BOTH PARTIES. That being said, your best bet is to give all the proper documentation to the CRA while filing a tax return the first time. In this particular case, a signed custody letter by both parties was enough to satisfy the CRA to claim one eligible dependent. The custody letter stated that both parties equally had both children as dependants going back to 2013. Both parties signed and dated the letter that this was the case. If you do not have an official separation agreement in place authorized by a lawyer, be sure to get this in place as this can make a difference in terms of getting a refund or owing the government!
The second step is to determine the amount for children born in 1997 or later (line 367). The CRA website states that “If the child resides with both parents throughout the year, either you or your spouse or common-law partner can make the claim.
If you are making this claim for more than one child, either you or your spouse or common-law partner must make the claim for all children under 18 years of age at the end of the year and lived with both of you throughout the year.”
The custody letter mentioned above was enough evidence for the CRA that my client could claim BOTH amounts ($2255 each) for this particular benefit. Since both parties have ‘shared physical custody’, both children can be claimed.
An important thing to note is that if an ex is paying support and does not have over 40% shared custody, then they cannot claim an eligible dependent that they are paying the support towards. That ex cannot claim the child amount on line 367 as well since there is no shared custody.
Separation and divorce can lead to complex situations at tax time in determining eligible dependents for each party. To ensure that the CRA will credit you with a benefit that you deserve, be sure to have your documentation in place. You NEED to work with your ex in creating a custody letter stating who is claiming which child (or children) and signed/dated by both parties. This letter will work until an official separation agreement is formulated. At least it will save you (and your ex) the headaches of dealing with the CRA to resolve getting the benefits.
Remember that having your ‘ducks lined up in a row’ with proper documentation prior to preparing and filing your tax return can make the difference in small refund versus a huge amount owing!