My wife was browsing through some online "for sale" ads and came across a wedding dress for sale. The ad read: "For Sale: Wedding dress. Worn once by mistake. Call Julie."
Now, it's clear many marriages don't work out in the long run, unfortunately. This has a few implications. First, you might find a good deal on a used wedding dress if you check online. Second, it can complicate your tax filings and certain benefits you might be entitled to. In the past three weeks, there have been two court decisions handed down by the Tax Court of Canada, each dealing with divorcées and the Canada Child Benefit. Let me share the stories.
The first story
Both stories deal with the Canada Child Tax Benefit (CCTB, as it was called prior to the 2016 federal budget) and the Canada Child Benefit (CCB, the new name). This benefit is a tax-free monthly payment to help eligible families with the cost of raising kids under the age of 18. The benefits are paid over a 12-month period from July of one year to June of the next and are recalculated every July based on information from your tax return for the previous year. Who's entitled to collect the benefit? The primary caregiver of the child. Who's the primary caregiver? This can be confusing in the case of a divorce.
In the first story, the case of Perron v. the Queen, (2017 TCC 220), Ms. Perron and Mr. H, her ex-spouse, were divorced, but shared custody of the kids. Ms. Parron wanted to make a claim for the full amount of the CCTB and for the GST/HST credit in respect of her kids for the years 2013 through 2016. In fact, even though their divorce order specified that she and her ex-spouse shared equal custody, it also said that she alone would be entitled to receive the CCTB for the kids (the order was silent on the GST/HST credit).
The problem? The taxman decided she was not entitled to the full benefits because she had joint custody. The taxman chose, instead, to pay her half the benefits. The judge noted that the Income Tax Act is worded such that it doesn't matter what any agreement between the spouses says when determining who should collect the CCTB. Since there was joint custody, the benefit is split between the parents. What about the GST/HST credit? The law does allow a divorce order or agreement to determine who gets this credit, but Ms. Perron's order was silent on this credit, so she didn't receive the full amount of this credit either. Case dismissed. Ms. Perron lost.
One final note: Ms. Perron asked the court to consider the hardship she would face without receiving the full amount of the CCTB and to also rule that she was entitled to the former Universal Child Care Benefit (a cousin to the CCTB). The judge simply noted that he couldn't rule on these issues because they were outside the jurisdiction of the Tax Court. She'll have to fight in provincial court to win those battles.
The second story
In the case of Zara v. the Queen (2017 TCC 45), the issue was whether Mr. Zara was entitled to receive his half of the CCB since he and his ex had agreed they would share custody of their children. Their agreement referred to "joint custody" and provided that the children would be with their mother 60 per cent of the time and with Mr. Zara 40 per cent. In past cases, this custody split has been sufficient for the Tax Court to rule the custody is effectively equal.
In this case, Canada Revenue Agency (CRA) refused to use common sense – an increasing trait, unfortunately – in the way it dealt with these folks. The CRA determined Mr. Zara and his ex had shared custody only for the months of July and August, but not during the school year. Therefore, the CRA argued, Mr. Zara was not entitled to half the CCB.
The Tax Court judge in this case allowed the appeal of Mr. Zara. The judge concluded: (1) the most important factor was that Mr. Zara and his ex-spouse had agreed, as part of their divorce proceedings, to share parental responsibility with shared custody on a 60/40 basis; (2) this approach was followed by Mr. Zara and his ex-spouse in practice and; (3) although this case was at the margins of near-equality, the kids resided nearly equally with each parent as that term has been interpreted and applied by the Tax Court. Victory: Mr. Zara.
The moral
So what does all this mean for you? If you're going through a divorce, don't expect the CRA or the courts to make common-sense decisions for your benefit. That may not happen. A better idea is to seek advice from a tax pro as part of finalizing your divorce agreement. This could be a lot less expensive than fighting to collect dollars owing to you later.
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author and founder of WaterStreet Family Offices.
Tim Cestnick