When parents separate or divorce, there are three instances when child benefits are likely to become an issue:
- When government is determining the amount of and which parent should receive the federal (and coordinated provincial) benefit.
- When determining whether and how much one parent must pay in child support and/or spousal support to the recipient parent.
- When a single parent enters into a new common-law or legal marriage, the Canada Revenue Agency will re-determine changes to child benefits. Or if there has been another similar material change of circumstance for the eligible children.
Canada Child Benefit
In 2016, the Federal Government made changes to the benefits for children. Under the old system, families could receive both the Canada Child Tax Benefit (CCTB) and the Universal Child Care Benefit (UCCB). The CCTB was tied to income but the UCCB was, as its name implies, universal.
The new Canada Child Benefit (CCB) combines the CCTB and UCCB into one tax-free monthly payment made to families with children under 18 years of age. Also part of the monthly payment is the BC early childhood tax benefit. This is a non-taxable amount paid monthly to qualifying families with children under the age of six and is calculated based on the number of eligible children and the adjusted family net income.
The Canada Revenue Agency uses information from parents’ income tax and benefit returns to calculate the CCB payments. In order to be eligible for the CCB, a parent must file his or her return every year, even if he or she does not have income in that year. If the parent has a spouse or common-law partner, they also have to file a return every .
Benefits are paid over a 12-month period from July of one year to June of the next year. The benefit payments are recalculated every July based on information from the parent and his or her non-parental spouse’s (if applicable) income tax and benefit returns from the previous year.
When two parents live together, the spouse who is “primarily responsible for the care and upbringing of the child” will receive the CCB benefits and must be the one to apply for them. The primary caregiver is presumed to be the mother. However, when a couple separates and their child lives with both parents more or less equally, then each parent will receive 50% of the payment. Accordingly, a shared custody arrangement may mean less funds in the former family’s pocket than would otherwise be received by the primary caregiver.
With respect to what is considered a “more or less equal basis”, in Fortin v. The Queen, 2015 TCC 209 (CanLII), the court found that a taxpayer who had custody of his children 43% of the time was caring for them on a near equal basis with his ex-spouse. As far as the CRA is concerned, shared custody is determined not by any separation agreement, but by taxpayer behaviour.
Eligible Dependent Credit
With respect to the eligible dependent credit, only one parent may claim this credit in any given year. If both parents claim it, the CRA will disallow both claims so it’s important to determine who will claim the child or children each year and document it in the separation agreement or consent (divorce) order.
When negotiating a separation agreement or consent order, it’s important to address the sharing of child benefits. A change of marital status or in the number of eligible children in a parent’s care will result in a re-calculation of the child benefits. A re-calculation may result in a parent being required to repay the CRA. Although the CRA is not bound by an agreement or order, it will consider them as part of their analysis of the taxpayer behaviour to determine who is eligible for the credit.
If you are going through a separation or divorce, consult a family lawyer to help establish the financial arrangements including the division of government benefits for children.