When parents separate and divorce, typically they are able to agree on an arrangement to share custody of their children. A shared custody agreement is often to the benefit of all involved, especially the children.
A shared custody agreement usually makes the most sense from a human perspective, it can cause legal, financial, and tax complications. Parents who share custody of their children must usually share, or divide, the tax deductions and benefits which can be received in respect of those children.
One of those benefits is the Canada Child Benefit (CCB). The CCB is a non-taxable monthly benefit paid to parents of children who are under the age of 18.
How does a shared custody agreement affect CCB amounts?
The tax rules allow parents who share custody to also share CCB amounts. In such situations, payments made are equivalent to each eligible individual receiving one-half of the annual entitlement that they would receive if they were the only eligible parent (i.e., if the child lived with them all of the time), paid in monthly installments over the year. Since 2011 the Canada Revenue Agency (CRA) was determining who qualifies. This was based on an interpretation of shared parenting meaning that a child lives with the parent between 40% and 60% of the time. However, recent Court decisions have altered and narrowed that policy, finding that a shared parenting arrangement requires that a child reside with a parent between 45% and 55% of the time.
CRA’s updated definition on shared custody parent
In the CRA’s view, the narrower interpretation put forward into those Court decisions could have resulted in a number of parents who share parenting time not being able to share in the benefits to which they are entitled. Consequently, new rules have been passed to clarify the payment of CCB to parents with shared custody arrangements.
The new rules state that a shared custody parent is defined as one of two parents who:
- are not at that time cohabitating spouses or common-law partners of each other;
- reside with the child either at least 40% of the time in a month or on an equal or approximately equal basis; and
- primarily fulfill the responsibility for the care and upbringing of the child when residing with the child.
The changes provide more flexibility when it comes to shared-custody parents and the receipt of tax benefits for their children. This allows the CRA to continue with its existing administrative practices with respect to such parents. Please note the changes are retroactive to July 2011 and later. Individuals should review their circumstances and consider whether to request a redetermination of their benefits.