SPLITTING DISABILITY CREDITS
January 2022
Audrey Veltri, IG Wealth Management
Crystal Mathieson, Pinnacle Accounting and Finance
When a relationship ends, there are usually many things that need to be divided- and one of those things can be tax benefits and credits. In this article, we will discuss the options that couples have when they separate and are supporting a dependent with a disability.
The first tax credit we will look at is the Disability Tax Credit, a federal non-refundable tax credit which was designed to recognize that Canadians living with a disability can face higher costs of living. The credit itself is formally attached to the SIN number of the individual with the disability but can then be transferred to another person, providing that person is providing regular and consistent support to the disabled individual.
In most cases where there are two parents, the parent with the higher taxable income would claim the credit, as it would provide the greatest reduction in tax payable. When a couple separates, it would still make the most sense, from solely a tax perspective, for the higher income earner to continue to claim the credit. However, this is not always possible, nor agreeable.
Here are the options for allocating the Disability Tax Credit, following a change in marital status.
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One parent can continue to claim the full credit amount
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Parents can elect to split the credit if caregiving responsibilities are shared
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Parents can elect to claim the credit in alternating years
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If a parent is required by a court order or written agreement to pay child support for the child with the disability, that parent is not permitted to claim the Disability Tax Credit. Therefore, the parent receiving the child support payments must be the one to claim the credit.
The Child Disability Benefit payment is a tax-free monthly supplement which qualifying families receive in addition to the regular Canada Child Benefit payment. When looking at the Child Disability Benefit, the rules are quite different.
This monthly supplement can only be received and claimed by one person. You are not able to split or share this benefit. In most cases, it will be paid to the person who is primarily responsible for the child, or the person with whom the child resides with the most.
It is important for couples to understand that the CRA will not engage in dispute resolution surrounding tax benefits or credits. If the separating couple is not able to come to an agreeable decision, the Canada Revenue Agency reserves the right to disallow anyone from making a claim until a resolution is provided. The CRA will request specific documentation to confirm the custody and living arrangements agreed upon for the child, as well as any child support arrangements in effect.
Footnotes:
*A separation occurs under the eyes of Canada Revenue Agency when the couple is living apart for a period of more than 90 consecutive days.
**If you were separated for only part of the year, special rules will apply, and you should contact an accountant for personalized advice.
Resources:
If you or someone you care about has questions about this article or could benefit from disability supports and planning for the future, I am here to help.
We provide financial guidance to families supporting dependents with a disability and family stewards to ensure effective access to all financial programs and government supports. We implement strategies to protect these supports and guide families through periods of transition and all life stages. We create solutions that transcend generations, so families can enjoy today, embrace tomorrow and secure a comfortable, safe and healthy future for the whole family.
Partner at Pinnacle Accounting and Finance, Crystal strives to use her skill and knowledge to offer solutions and bring peace of mind to her clients. Having gained 17 years of accounting experience through work in public practice, industry and as a CFO, Crystal is able to relate her own practical experience to her client’s needs. She enjoys analyzing each client’s unique situation and putting together an optimal tax plan to help them reach their goals. Born and raised in Calgary, Crystal enjoys volunteering in the community and serves on the boards of local nonprofit organizations.
