In a June 21, 2017 Tax Court of Canada case (Lawson vs. H.M.Q., 2015-3474(IT)I), at issue was whether the wholly dependent credit could be claimed where only one party was providing a cheque which represented the net of each party’s child support liability.Where both parties are required to pay, either may claim the credit (Subsection 118(5.1)). At issue was whether the agreement, in fact, created two obligations to pay or just one.

2017-10 RELATIONSHIP BREAKDOWN WHOLLY DEPENDENT CREDIT

In a June 21, 2017  Tax Court of Canada  case (Lawson vs. H.M.Q., 2015-3474(IT)I), at issue was whether the wholly dependent credit  could be claimed where only one party  was  providing a cheque  which represented the  net  of  each  party’s  child  support  liability.Where  both  parties  are  required  to  pay,  either  may claim  the  credit  (Subsection  118(5.1)).  At  issue  was whether the agreement, in fact, created two obligations to pay or just one.

Taxpayer wins

While the Court expressed concern that minor wording differences in an agreement  could  cause  a  credit  to  be  available  or  not,  the  Court determined that in this situation there truly was an obligation on each person’s part. As such, the credit was allowed.

Specifically, the Court noted: “..where a separated couple rely on CRA commentary suggesting there can be one cheque  for  convenience sake, where the couple draft their agreement with the intention to create mutual requirements to pay, where  the  net  payment  is  not  based  solely  on  the  Guidelines  but represents an obligation of one side to make payments towards travel expenses of the other and where a subsequent written agreement is accepted  by  the  CRA  while  not  altering  the  prior  agreed-upon arrangement, I am prepared to interpret the separation agreement as creating  two  obligations  and  not  simply a means of calculating one support payment.”

The Court also gave particular credence to minutes of the settlement that stated precisely the  gross amount  that each party should pay. For specific excerpts from the settlement agreement, see the Ruling.