http://decisions.fca-caf.gc.ca/site/fca-caf/decisions/en/item/37731/index.do 
Verones v. The Queen[1] (March 6, 2013) is a short but nevertheless interesting decision of the Federal Court of Appeal dealing with entitlement to non-refundable child tax credits. The appellant claimed to be entitled to the credits in respect of one of the two children for whom he paid support to his former spouse. The facts are simple:
[3] The appellant and his former spouse have lived apart since 2008. They are the parents of two children under the age of 18. The children reside 50% of the time with each parent in a shared custody arrangement. Pursuant to an Order of the Court of Queen’s Bench of Alberta, the appellant was ordered to pay both spousal support and child support. Only the child support is at issue in this appeal. The appellant pays monthly support for the children in the amount of $1,763. This amount represents a set-off between the total amount the appellant is required to contribute to his children’s needs ($2,202), and the amount his former spouse is required to contribute ($439), as set out in the
Federal Child Support Guidelines, SOR/97-175 (the “Federal Guidelines”).
To put the decision in perspective one has to look to subsection 118(5) of the
Income Tax Act[2] which generally prohibits a taxpayer paying child support from claiming child tax credits:
118(5) No amount may be deducted under subsection (1) in computing an individual’s tax payable under this Part for a taxation year in respect of a person where the individual is required to pay a support amount (within the meaning assigned by subsection 56.1(4)) to the individual’s spouse or common-law partner or former spouse or common-law partner in respect of the person and the individual
(a) lives separate and apart from the spouse or common-law partner or former spouse or common-law partner throughout the year because of the breakdown of their marriage or common-law partnership; or
(b) claims a deduction for the year because of section 60 in respect of a support amount paid to the spouse or common-law partner or former spouse or common-law partner.
An exception was introduced in the Act with effect from 2007 where both parents were paying support for the same child:
118(5.1) Where, if this Act were read without reference to this subsection, solely because of the application of subsection (5), no individual is entitled to a deduction under paragraph (b) or (b.1) of the description of B in subsection (1) for a taxation year in respect of a child, subsection (5) shall not apply in respect of that child for that taxation year.[3]
The Department of Finance Technical Notes to subsection 118(5.1) read:
Presently, subsection 118(5) precludes a person from claiming a credit in respect of a child under paragraph (b) or (b.1) of the description of B in subsection 118(1) if that person also pays child support in respect of the child. Where, in the same taxation year, two persons pay child support in respect of a child, neither person is eligible for the credit.
New subsection 118(5.1) corrects this unintended result by providing that, in such a case, the Act is to be read without reference to subsection 118(5). This ensures that one of the persons may claim the credit.
CRA has set out its interpretation of subsection 118(5.1) in a Ruling:[4]
New subsection 118(5.1) of the Act was introduced, effective with the 2007 taxation year, to eliminate that restriction when both parents are required to pay child support in respect of the same child. The amendment ensures that in cases where both parents had an obligation to pay a child support amount in respect of the same child, one parent could claim the EDC in respect of that child, providing all other conditions were met.
It is a question of fact as to whether the agreement or court order imposes a legally enforceable obligation on both parents to pay child support. Where a written agreement or court order requires both parents to make child support payments and both parents make actual payments (e.g. cheque, bank or maintenance enforcement programs), then supporting documents are generally available to substantiate the individual’s eligibility for the exception provided under subsection 118(5.1) of the Act.
In circumstances where the parties utilize a “set-off” arrangement such that only one parent makes a child support payment for the difference, then the eligibility for the exception could still apply providing the supporting documentation and the facts provided by the individuals in question support the existence of that arrangement. However, in our view, an agreement which calculates child support obligations with reference to a statutory scheme such as the federal Child Support Guidelines which does not obligate both parties to pay child support does not meet the requirement of a legally enforceable obligation on the recipient. In this case, the payer is not entitled to claim the EDC.
Acceptable documentation to support a claim for the EDC by an individual include a written agreement or court order that provides details of each dependant, identifies the type of custody (sole, joint, split), confirms the living arrangements, and clearly imposes a legal obligation for both parents to pay child support.
The Federal Court of Appeal has now weighed in on the question of whether notional set-offs under the Federal Guidelines entitle the taxpayer making the net payment to a child tax credit:
[6] The whole discussion about the concept of set-off is a mere distraction from the real issue, i.e. whether or not the appellant is the only parent making a “child support payment” in virtue of “an order of a competent tribunal or an agreement”, as defined under the Act.
[7] In
Contino v. Leonelli-Contino, 2005 SCC 63; [2005] 3 S.C.R. 217 [Contino], Bastarache J. clearly articulated that the underlining principle relating to child support in the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.) (s. 26.1(2)), and the Federal Guidelines (s. 1), consists of the parents’ “joint financial obligation to maintain the children of the marriage in accordance with their relative abilities to contribute to the performance of that obligation” (at paragraph 32).
[8] Once each parent’s obligation vis-à-vis the children is determined, the higher income parent may be obligated to make child support payments to the lower income parent as part of his or her performance of said obligation. However, in the end, the set-off concept does not translate the parents’ respective obligation to contribute to child rearing into a “support payment” as defined in the Act.
Thus the taxpayer (who was unrepresented) was unsuccessful notwithstanding a clever argument. What is somewhat puzzling is that if CRA’s Ruling is correct it would seem that taxpayers could avoid this result by not relying upon the Federal Guidelines at all but entering into a support agreement that essentially would have the same effect without the use of set off.
[1] 2013 FCA 69.
[2] R.S.C. 1985, c. 1 (5th Supp.), as amended (the “Act”).
[3] While it is not entirely clear from the statute it appears that the parents must elect which will be entitled to claim a credit for which child and that subsection 118(5.1) does not operate to permit both to claim credits in respect of the same child.
[4] Income Tax Ruling 2011-0396611E5 (E).