Dear Member of Parliament:
I am a member of your constituency, a part-time single mom and a self-employed Chartered Professional Accountant.
I work in the Collaborative Practice as a financial neutral to support families as they navigate separation and divorce.
This past year, my time has been consumed in supporting my recently separated clients as they navigate the tax system in Canada. I have come to see that there is an inordinate and unfair burden being placed on two household families.
A specific example is the eligible dependant credit that is offered to single-parent households, which is worth about $2,100 for each taxpayer or single-parent household.
A taxpayer can claim the eligible dependant credit if they are a single parent and do not have a legal obligation to pay child support.
The Canadian family law and all Provincial family law requires all parents to provide financial support to their children based on their respective individual incomes. Every parent has a requirement to pay child support based on their individual incomes. Every parent.
The way this is implemented in a separation agreement is that each parent’s obligation is calculated based on their individual incomes. Often, the two parents have different incomes which means that higher-earning parent has to pay the lower-earning parent more child support. For ease (and because lawyers are not versed in the intricacies of Canadian tax law), lawyers will often note in the agreement that the higher-earning parent, will pay the lower-earning parent an offset or set-off amount (the child support amounts are netted against each other and the difference is paid to the lower-earning parent).
If the separation agreement is written using the offset/set-off language, the CRA will deny the eligible dependant credit to the higher-earning spouse, stating that the higher-earning spouse is the only spouse with the legal child support obligation.
However, if the agreement is written so each parent pays each other, then the CRA will grant the eligible dependant credit to both the higher-earning and the lower-earning parent. There is no difference between these two families other than one family had lawyers draft a separation agreement knowing the semantics that will satisfy the CRA and the other family did not.
Here is the standard response I have seen when the credit is denied to the higher-earning spouse:
When a statutory scheme such as the Federal Child Support Guidelines is used, the payer of the setoff amount is the only individual legally required to pay child support.
I will admit, that my family is one of the families that had a separation agreement that did not pass muster with the CRA. My co-parent and I have been sharing parenting on a fifty-fifty basis since we separated in 2013. I was the lower-income spouse and continue to be so. When I first filed my tax return post-separation, I had to undergo a review to prove that I was separated and had shared custody/joint parenting of my children. I did this once and since then, have not had any issues in collecting the UCC, the Child Tax Benefit and more recently, the Canada Child Benefit.
My co-parent, had to go through a much more extensive trial with the CRA as he is the higher-earning male in this situation. First, he had to prove that his children were his children as the CRA automatically defaults the children to the mother’s tax record, always. They do not cross-reference spousal tax records and so when I told the CRA that we had joint custody of our children and proved it to them, they still made my co-parent do this. And they don’t make it easy to do this. This step does not get done by the majority of families and so the majority of families are losing out on half of their Canada Child Benefit payments.
Then the higher-earning spouse does not get the eligible dependant credit, just as has happened to my family. I have fought this though, on behalf of my co-parent, and I have successfully won. My co-parent had his eligible dependant credit denied for the 2015 tax year because we had been using the set-off amount but after replying to his review, getting denied again, and then filing a notice of objection, the CRA granted him the eligible dependant credit. This took at least ten hours of my professional work time. I have learned the ins and outs of navigating the Canadian Tax system as a single parent and as a professional that supports families that are going through separation and divorce. If it takes ten hours of my time for just myself and I am an expert, can you really expect the average Canadian family to persist with this? Only the families with resources can, and the irony is that they don’t need the credit as much as the families that are lower-income. Ten hours of my time wipes out any benefit that the family would obtain for getting this credit.
So we won our tax appeal for 2015 but then my co-parent was denied the credit again in 2016 and so again, I am spending my professional and family time to first reply to the CRA review request and then prepare the notice of objection when the CRA denied the credit. I have sent our 120-page separation agreement (which the CRA asks for each and every time we go through this process) to the CRA on seven separate occasions. Where did all the copies go and why are they not retained with our files? I don’t even want to think were all seven copies of our agreement ended up. But that is a different story.
Some more history about our family: my co-parent continues to be the higher-earning parent and I have chosen to do paid work on a part-time basis so that our family can have balance. It is not easy being divorced and running two households with children. My co-parent and I are lucky in that we have found a way to make it work. My co-parent could really use any extra financial help he can get. Our family could. The funds from the eligible dependant credit would be used to support our family and our two children and allow us just that little bit more wiggle room we need to juggle it all and to make sure our children can have the best childhoods possible. We want as much financial stability as possible in our family to support our children into their adulthood.
Don’t we want successful adults in Canada? Do we not want to support our families and make it a little easier for them? Why is the Canadian Tax system punishing two-household families? I can say that two-household families have often had to overcome many other hurdles and struggles as they navigated their separation. Why are we making the Canadian Tax system one more challenge that they have to manage?
Thank you for reading my lengthy email. I would be happy to meet to discuss this more.
I acknowledge that I live, work and play on the unceded and traditional territory of the xʷməθkʷəy̓əm (Musqueam), sel̓íl̓witulh (Tsleil Waututh) and sḵwx̱wú7mesh (Squamish Coast Salish) peoples.