Wholly dependent person credit disallowed
Normally, you can claim the wholly-dependent person credit for a minor child living with you if you are single (including divorced, separated, or widowed). You cannot claim the credit if you are paying child support for the child to your former spouse. However, if both you and your former spouse are paying each other support, you may be able to claim the credit.
In the recent Bayrack case, the taxpayer and his former spouse had two children. The taxpayer paid his former spouse child support in a year and attempted to claim the wholly dependent person credit in respect of one of the children.
The taxpayer argued that the support court order referred to his payment as a “set-off”, in that it was effectively his obligation to pay support to his former spouse net of her obligation to pay him support. As such, the taxpayer argued, they were both paying each other support such that he could claim the credit.
The CRA denied the credit on the basis that only the taxpayer was paying child support. On appeal, the Tax Court of Canada agreed with the CRA and denied the credit. The Tax Court Judge interpreted the support court order as directing only the taxpayer to make support payments, and that there was no order for his spouse to make partially offsetting payments. According to the Judge, the net payments made by the taxpayer “represented a set-off of their respective financial abilities rather than a set-off of respective child support payments.” Perhaps, then, if the support court order had specified that there was a set-off of their respective child support payments owing to each other, the taxpayer would have been allowed the credit.