In general terms, an individual is eligible to claim a “wholly dependent person” tax credit for a child under 18 years of age, or at any age if the child is mentally or physically impaired, if, at any time during the year, the individual:
- Did not have a spouse or common law partner, or was separated from their spouse and did not support nor was supported by their spouse;
- Supported the child in the year; and
- Lived with the child in a home maintained by the individual.
For example, in Ontario, the combined Federal and Provincial tax savings on claiming the wholly dependent tax credit is $2,155 which is a substantial tax-savings for single parent families.
The maximum wholly dependent tax credit is not available when any of the following conditions are met:
- The individual is claiming a spouse or common-law partner amount (tax credit);
- Someone else in the household is claiming a “wholly dependent person” tax credit; or
- The claim is for a child for whom the individual was required to make support payments for in the year (see exception below).
In many marital break-down scenarios, parents share custody and also share in support payments based on the level of custody each parent enjoys. Prior to 2007, neither parent in these shared custody and support arrangements was able to claim the wholly dependent person tax credit as they were constrained under the support payment restriction, no matter the quantum of support paid in a year.
This has been verified in at least three separate court cases; Slade  5 C.T.C. 2285 (TCC), Leclerc  2 C.T.C 2448 (TCC) and de Moissac  1 C.T.C 2001 (TCC).
As a result, subsection 118(5.1) of the Income Tax Act was enacted for 2007 and subsequent taxation years to allow for one person to claim the credit for a child when both parents share custody and pay support for the child while in the other parent’s custody. This should allow for both parents to claim the wholly dependent person credit in situations where more than one child is involved and both parents have custody and pay support for the child to the other parent during some time duration in the year.
As a result, properly written separation agreements could result in over $4,300 of combined tax savings per year for separated or divorced individuals with more than one child when both parents share custody and pay support for the same children.
If you have any questions, please consult your local MNP Tax advisor or contact myself, Steve Blazino, CA, CBV, and we would be happy to assist you.
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