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The Tax Court dismissed an appeal for an eligible dependant amount, holding the appellant remained legally required to pay child support under an unvaried consent order.
The August 2020 consent order met the indicia of an order imposing liability for child support arrears covering the relevant prior period, so the appellant was found to be paying a support amount in 2019 and subsection 118(5) therefore disqualified him from claiming the wholly dependent person credit for 2019.
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Applying the McKimmon factors to the written agreement and evidentiary record the Court found the series of unequal payments, including an in‑kind vehicle transfer, were structured to meet seasonal cash‑flow constraints, were intended for living and maintenance costs, bore no interest or penalty provisions, and were thus properly characterized as periodic maintenance payable under subsections 56.1(4) and 60.1(4) of the Income Tax Act; accordingly the $42,000 is deductible as spousal support.
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On the facts the written separation agreement, read in context with the parties' evidence, contemporaneous understanding, subsequent minutes of settlement and CRA commentary, was properly interpreted to create reciprocal legal obligations to pay support (practical one-cheque arrangement notwithstanding), thereby bringing s.118(5.1) into effect and entitling the appellant to the Tax Credits for 2013; CRA's document demand did not breach s.8 of the Charter under the circumstances.
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Because only the appellant made a net payment to his former spouse and only the former spouse had discretion as to the use of that payment, the payment constituted a 'support amount' under s.56.1(4) and subsection 118(5) of the Income Tax Act bars the deduction; the Addendum and Variation Order did not create reciprocal payable support amounts effective for the 2012 taxation year and the Variation Order was not retroactive, therefore subsection 118(5.1) does not apply and the credits must be disallowed.
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The monthly payments met the statutory definition of "support amount" in s.56.1(4) because they were periodic, payable under a court order, for the maintenance of the recipient who had discretion as to their use, and received while separated; therefore they must be included in the appellant's 2012 income under s.56(1)(b), notwithstanding contractual or judicial labels calling them "non-taxable".
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The Court found the support payments were payable to the appellant "for her own personal benefit," the residence expenses were estimates not predetermined or fixed, the payer's obligation to pay was unconditional, and the appellant retained the ability to control and vary the expense items; therefore she had discretion as to the use of the periodic payments and the $21,000 is includible in her income under s.56.1(4) and s.56(1)(b).
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Because the appellant was required by court order to pay child support in 2009 and there was no evidence the former spouse was required to pay periodic support to the appellant, the statutory definition of 'support amount' in s.56.1(4) was satisfied and subsection 118(5) barred the appellant from claiming the child tax credits; subsection 118(5.1) did not apply.
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The Court found that the appellant was not required to pay a support amount in respect of child G during the 2009 taxation year because custody changed in October 2008 and the interim consent and subsequent settlement/consent to judgment had the practical retroactive effect of extinguishing the support obligation; therefore subsection 118(5) did not apply to 2009 and the appellant is entitled to the dependent and child amount credits for 2009. For 2008 the mother was the custodial parent for the relevant part of the year and the father was required to pay support for part of 2008, so subsecti…
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Because the Temporary Support Order remained in force throughout 2007 the appellant was required by an order of a competent tribunal to pay a periodic support amount for the child during that taxation year; accordingly s.118(5) barred the eligible dependent credit and s.118(5.1) did not apply because the former spouse was not required to pay support for that child in 2007; appeal dismissed.
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