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Child Tax Benefits Topical Issues and Professional Considerations

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  1. Child Tax BenefitsTopical Issues and Professional Considerations Cindy Wilkey & Jackie Esmonde Income Security Advocacy Centre April 12, 2011 Adapted from CRA and ISAC presentations

  2. Overview of Presentation • Application & Eligibility • Life Changes • Shared Eligibility • Eligibility Reviews • Overpayments Recovery • Practice Issues • Objections to Benefit Determinations • Appeals to the Tax Court of Canada • Recent Tax Court Jurisprudence

  3. CCTB Eligibility The following conditions must ALL be met to be eligible for the CCTB: • must live with the child, and the child must be under the age of 18; • must be primarily responsible for the care and upbringing of the child; • must be a resident of Canada, and • applicant or spouse/common-law partner must be: • a Canadian citizen, • a permanent resident, • a protected person, or a temporary resident who has lived in Canada for the previous 18 months and have a valid permit in the 19th month (other than one that does not confer status).

  4. Applications • 3 ways to apply • ABA - as part of birth registration package • CCB Application – Form RC66 • On-line using the My Account feature • CTB Amount based on previous year’s “adjusted net family income” • 2-parent families – both must file a tax return • Separated parents • Sole custody: CTB goes to parent with primary responsibility for care and upbringing – only that parent has to file a return • Joint custody – shared eligibility – each parent must file return to get his/her benefits

  5. Child Benefit Payments • CCTB/NCBS Payment levels and income thresholds can be found at: http://www.cra-arc.gc.ca/bnfts/cctb/cctb_pymnts-eng.html • Eligibility for CTB also determines eligibility for NCBS, UCCB and OCB – separate applications are not required. • Initial applications take around 80 calendar days to process – longer if information incomplete • Retroactive payments of up to 11 months are paid automatically, if eligible. • Longer retroactive payments can be obtained through a written request under the Taxpayer Relief Provisions http://www.cra-arc.gc.ca/gncy/prgrms_srvcs/txpyrrlf/menu-eng.html

  6. Eligibility after initial Application • Benefit year runs from July 1st to June 30th • If child leaves the care of the recipient, eligibility ceases • e.g. if child goes into CAS care – parents must reapply when child returned to their care. • If child goes to live with another adult, in most cases, that adult will be the one eligible for the CTB • If a new child comes into the care of the recipient at any point in the year, an application can be made to start CTB.

  7. Obligation to file annual tax returns • If tax return not filed & assessed in time for July payment • CRA issues Notice of Determination, advising of missing information and advances July payment based on the information on file • If return not filed & assessed in time for August payment: • CRA issues Notice of Determination, with a bill for one payment. No further payment made. • If filed, but not assessed in time for August pay: • CRA will issues payments based on the information on file until the return is assessed.

  8. Life Events • Certain Life Events can affect CTB eligibility and should be reported to CRA: • Change in marital status (RC65) • Number of children changes (RC66) • Province of Residence Changes • Bank account information for Direct Deposit changes (T1-DD) • Address changes (home and mailing)

  9. Marital Status – Common Law Partner • Subsection 122.6 of the Income Tax Act defines cohabiting spouse or common law partner • Common law partner – cohabiting with a person in a conjugal relationship: • For at least 12 continuous months (including separations of <90 days), or • Is the parent of the person’s child by birth or adoption • Has custody and control of the child and child is wholly dependent upon the person for support

  10. Marital Status - Separation • Not separated in CRA’s eyes until separate and apart for at least 90 days. • A separation agreement/divorce petition/divorce decree is not determinative of a client’s marital status under the Income Tax Act. • Unlike Family Law, the ITA does not recognize the concept of living separate and apart in the matrimonial home. • Where separated spouses/ common law partners still have the same address, CRA will not recognize them as separated. • An exception may exist where there are separate self-contained living quarters within the same address.

  11. Shared Eligibility • When parents split, the parent with primary responsibility for the children is the one eligible for the CTB. • Shared Eligibility for CTB exists when a child, • resides more or less equally with two separate individuals, and • both share responsibility for care and upbringing • Where parents disagree, CRA will make its own determination of whether both or only one parent has primary responsibility. • CRA is not bound by court orders or separation agreements - eligibility is based on the de facto custody, care and responsibility arrangements

  12. Shared Eligibility: July 2011 payment changes • As of July 2011, CRA will be able to pay shared eligibility parents 50% of the CTB benefit level every month. • A significant improvement over the current 6-month-on / 6-month-off rotation. • The ITA amendments that permit this, will also give the Tax Court jurisdiction to award shared eligibility benefits • Transition to new regime will be automatic • Transitional provisions? • Not aware of any plan to address asymmetrical payment of CTB immediately prior to implementation

  13. Eligibility Review • Income Tax & Benefits system is a self-assessment system that requires taxpayers to report relevant information to establish taxes and eligibility for benefits. • In order to monitor compliance CRA conducts various reviews throughout the year. • Reviews can be triggered by: • Change in Marital Status • Questions about the number of eligible children • Application by non-recipient parent for full or shared CCTB • Inconsistent information – e.g. same mailing address for spouses claiming to be separated

  14. The Review Process • Initiated by a letter and a questionnaire • Depending on the issue, questionnaires may be sent to one or both parents • Typically given 30 days to reply • CRA says that no changes should be made to the benefits within that 30 day period. • CRA also says that benefits should continue so long as the recipient parent respond and there is no adverse determination, but… • Often CRA stops paying CTB until issue can be clarified. • Retro benefits payable, if separation established • If separation not established, could trigger an overpayment

  15. Marital Status Review • Most commonly triggered when a parent in receipt of CTB reports a marital status of separated, divorced or single, but former spouse or common-law partner is still using the same address with CRA or other government agencies. • Both parties are generally contacted, but if former partner does not respond, recipient parent has the difficult task of proving a negative - that former spouse no longer living at the same address. • Can result in months of CTB suspension while the parent tries to find documentation that satisfies CRA.

  16. Responding to the Review Request • See sample letter and questionnaire in the Workbook • It is important to respond as quickly as possible with at least three pieces of supporting documentation that: • Covers the full period under review • Confirms the client’s address • Confirms former partner living at a different address • see CRA: Documents required to support your benefits and credits

  17. landlord confirming that he/she has knowledge that the spouse or common-law partner did not reside at the common address doctor/dentist indicating the dates they were informed of the change of address and the addresses they have on file financial institution outlining the account information and addresses on file (i.e.. Did they close a joint account and open individual ones?) employer, on company letterhead, indicating the date they were advised of the marital status change and address change children's school or day care indicating the date they were notified of a marital status change and address changes for contact purposes Possible verification documents -Letters from:

  18. Other possible verification documents • A signed affidavit from an unrelated person or a person in authority confirming knowledge that they were living separate and apart (e.g. social worker, income assistance worker, accountant, teacher, police officer etc.) • A letter from a member of the clergy • Legal separation/divorce documents showing separate addresses • A letter from an insurance company in which they can confirm/outline the dates that insurance policies were adjusted to reflect the changes in insured individuals/occupants

  19. Bills or letters showing different addresses But rent receipts and utility bills, without information that confirms if/when the former partner left the residence, cannot be adequate on their own. Other ideas? Parents who have the least involvement with other agencies will have the most difficulty getting this documentation Other possible verification documents

  20. Primary Responsibility Review • Usual trigger non-recipient parent applies for full or shared CTB • letter and questionnaire is sent to the applicant and recipient parents with a 30-day window • If parent receiving CTB does not reply, CTB payments will stop • If both parents reply and the information is consistent and complete, CRA will make a determination of eligibility within a further 4-6 weeks.

  21. If information is unclear or inconclusive, CRA will request further information • CRA says that, as long as recipient responds to deadlines during the review process, CTB payments should continue • in fact, benefits are often stopped for months while the issue is sorted out • Overpayments: • No overpayments where shared eligibility is found • Overpayment will be assessed where the parent who had been receiving CTB is found to have been ineligible for prior periods.

  22. Responding to a shared eligibility review • Must show child(ren) physically living with parent and parent has primary responsibility for care and upbringing. • S.6301 of the Income Tax Regulations sets out factors such as: • Supervision of daily activities and needs • Arrangement of transportation to medical care • Arrangement of participation in and transportation to educational, recreational, athletic activities • Care for the childe when sick or otherwise in need of care • Attendance to the hygienic needs of the child on a regular basis • Provision of guidance and companionship to the child on a regular basis • The existence of a court order with respect to the child22

  23. Complete narrative documentation of number and age of children living with parent during the review period and the custody arrangements • Third party documentation – at least three documents that cover all of the children for the entire review period • From School • Letter confirming enrolment and contact information on file • Copy of Report Card indicating contact information during review period • Certified copy of child’s registration document from school showing guardian information

  24. Signed statement from a person in a position of authority who has had personal knowledge that the children resided with the parent and can also attest to care provided (e.g. doctor/dentist confirming that child a patient and was brought to appointments by the parent) • Copies of activity registrations or receipt showing child enrolled for the review period (and parent as a contact). • A copy of any court order or separation agreement detailing the custody arrangements, providing it reflects the child’s current living situation.

  25. Overpayments • CTB Overpayments are recovered from CTB and income tax refunds • Recover rate from CTB is at a rate of 100% where there is no financial hardship • The rate is reduced to 50% where there is financial hardship • Financial Hardship Rules exist as an administrative policy – not publicly available • CRA says the threshold starts at about $21,000 in income for a single person • In extraordinary circumstances a written request can be made for the overpayment recovery rate to be reduced to as low as 25% - on a time-limited basis

  26. Practice Issues: • Client Interview – what do you need? • Written Authorization to deal with CRA (Form T1013) • CRA letter and questionnaire and any other correspondence • Confirm children for whom CTB being paid/claimed • Details of separation and possible sources of status verification • May need to contact family lawyer • Need to discuss potential consequences of an adverse determination

  27. Dealing with a Distraught Client • Any tips? • Any cautions? • Is there a need to talk to the family law lawyer? • Dealing with contradictory or unconvincing information from your client • Advice? • Issues? • Professional responsibility?

  28. Advocating with CRA • Maintaining active contact with CRA is important • Not easy - CRA officer name but no telephone number is provided in the review letters • Clients are expect to call the CTB info line hotline: 1-800-387-1193 • Can make a request for named officer to call through that line. • Important to respond quickly to avoid lengthy benefit suspensions • MP offices have access to dedicated CRA staff • Might want to consider enlisting MP’s help

  29. Objections to Child Benefit Determinations • An objection may be filed with the CRA “Appeals Branch” where there is a disagreement with the way the CRA has allocated the child benefit. • An objection must be filed within 90 days of the date the notice of determination was mailed to the taxpayer. There are 3 ways to file an Objection: • Online using the “My Account” feature • Writing to the Chief Appeals Officer at the appropriate Appeals Intake Centre – for residents with postal codes starting with A to P, it is the Eastern Intake Centre in Sudbury • Complete Form T400A – Objection – Income Tax Act

  30. Objections • A person filing an objection can authorize another person to act as their representative by filing a T1013 form. The representative need not be a lawyer. • The CRA Appeals Branch will review the objection and will either reassess the benefit, confirm the original decision or make a determination.

  31. Objections • If the objection is not filed in time, the claimant can apply for an extension of time. It must be shown that: • They could not object or have someone else object for them; • They intended to object; • It would be fair to grant the extension; • They applied as soon as they could. • If the extension is granted, the objection is considered to have been filed on the day that the decision notice was mailed. The CRA will not grant an extension longer than one year. • A refusal to grant an extension of time to file an objection can be appealed to the Tax Court.

  32. Appeals to the Tax Court of Canada • A Notice of Appeal must be filed within 90 days of the date that the CRA mailed the objection decision. • If this deadline is missed, the appellant has one year and 90 days to file an application to extend the time to appeal. • There are two streams of appeals at the Tax Court: 1) Informal Procedure; 2) General Procedure. • Most CCTB appeals follow the informal procedure.

  33. Tax Court: Informal Procedure • The Informal Procedure is limited to cases in which the amount of federal tax and penalties in dispute for each taxation year, excluding interest, is $12,000 or less. • When the amount in dispute in an income tax case is greater than $12,000, a taxpayer who chooses the Informal Procedure must decide to limit the amount under appeal to $12,000; otherwise the General Procedure will apply.

  34. Informal Procedure • The appeal is started by filing 3 copies of the notice of appeal at any Tax Court office. • The Tax Court forwards the Notice of Appeal to the CRA. • The CRA must file a “reply” within 60 days and then a hearing is set.

  35. Tax Court: General Procedure • The General procedure entails a much more formal process. • An appeal is initiated by filing 3 copies of the Notice of Appeal and filing fee at any Tax Court office, to the Registry at a TCC office. • The CRA has 60 days to file their reply. A response by the appellant to the reply, if any, must be filed within 30 days.

  36. General Procedure • The parties exchange lists of the documents they will be relying on at the hearing. • Examinations for discovery usually follow. • The parties can agree to forego the above steps. • An application to schedule a hearing date is then made.

  37. Appeals to the Federal Court of Appeal • Appeals from the Tax Court of Canada are to the Federal Court of Appeal. • In general, the timeline for appealing to the Federal Court of Appeal is 30 days from the date of the decision (not counting July or August).

  38. Recent Tax Court Jurisprudence: The challenge of joint custody • There are two aspects of the definition of “eligible individual” that are of central importance to the Court in determining which parent gets the benefit (see s. 122.6 ITA): a) the parent resides with the child, and; b) the parent primarily fulfils the responsibility for the care and upbringing of the child.

  39. Recent Tax Court Jurisprudence: The challenge of joint custody Residence • “To reside with someone is to live or stay with someone in a given place with a certain constancy, a certain regularity or else in an habitual manner” (Lapierre v. Canada 2005 TCC 720). • But there are many arrangements in which there is a regular schedule and children split their time evenly as between their parents. • At least three recent cases have evaluated what percentage of time a child spends with each parent, and divided up the months in the calendar year accordingly. • Campbell v. Canada 2010 TCC 67; Matte v. Canada, [2003] F.C.J. No. 43 (F.C.A.); Connolly 2010 TCC 231

  40. Recent Tax Court Jurisprudence: The challenge of joint custody Primary Responsibility • In practice, the two factors (residence and primary caregiver) tend to become intermingled. • Penner v. Canada, 2006 TCC 413: while the child lived apart from her grandmother to attend school, at all times the grandmother paid for the child’s room and board, and made all decisions concerning the child’s medical care or education. The child also lived with the grandmother when she was not attending school: “As a result, Brittany resided with the Appellant at all times in question.”

  41. Recent Tax Court Jurisprudence: Other types of caregivers • Section 252(1) of the ITA provides that if a child is in the custody and control of a non-parent taxpayer, and they are “wholly dependent” upon them, that person will be considered a “parent” for the purposes of eligibility for the Child Tax Benefit.

  42. Recent Tax Court Jurisprudence: Other types of caregivers • Grenier 2010 TCC 234/Couture 2010 TCC 233: In these cases, a conflict arose where the person with whom a child was staying during the school year (not a family member) applied for the benefit. • The Court granted the benefit to the mother rather than the caregiver. • Because the mother continued to provide support for clothes, school supplies and food, it could not be said that the child was “wholly dependent” on the caregiver with whom he resided during the school year.

  43. Recent Tax Court Jurisprudence: Other types of caregivers • Parents of children in foster care are disqualified from receiving the Child Tax Benefit by virtue of the fact that the child protection agency is eligible for a “Children’s Special Allowance” (see s. 3(1) of the CSA Act). • The test is whether the allowance is “payable” not whether it is paid (Weidenfeld 2010 TCC 265; upheld by the Federal Court of Appeal in 2010 FCA 333).

  44. Recent Tax Court Jurisprudence: Living in a Spousal Relationship • CCTB beneficiaries can accrue large overpayments in circumstances in which Revenue Canada determines retroactively that they are living in common law relationships. • The income of both spouses is considered and can result in a substantial decrease in the CCTB entitlement.

  45. Recent Tax Court Jurisprudence: Living in a Spousal Relationship • Perron 2010 TCC 547: Former spouses living in the same house were found to be living separate and apart. • They each had their own bedroom and had no sexual relationship. Social contact was minimal and they did not share social activities. They shared household maintenance and expenses equally, but the mother was financially responsible for her daughter.

  46. Recent Tax Court Jurisprudence: Child Support Payments • If one parent is paying child support, that parent is automatically disqualified from receiving the benefit, even if they share custody for the child. • Note that if both parents are paying, then one parent can still claim the credit.

  47. Recent Tax Court Jurisprudence: Child Support Payments • While the Tax Court has concluded that this legislative policy can result in unfairness, it has no equitable jurisdiction to overrule the statutory provisions, even where circumstances changed such that the payor had sole custody of the child and stopped paying child support. • A retroactive court order acknowledging this arrangement and removing the child support obligation for the period in question was not sufficient to address the problem. See Dubis 2010 TCC 121; Pineau 2009 TCC 559; Beaudoin 2010 TCC 600.

  48. CRA online services Child and family benefits pagewww.cra.gc.ca/benefits Guides, forms, explanations, addresses and more. Benefits calculator www.cra.gc.ca/benefits-calculator) Calculate how changes in family situation may affect benefit payments.

  49. CRA – Info Lines • By Telephone • 1-800-387-1193 for CCTB • 1-800-959-8281 for DTC • 1-800-959-1953 for GST/HST credit • 1-800-959-2221 for Forms and Publications • 1-866-242-3167 for Appeals Branch • For a Teletypewriter (TTY) users, an agent at the CRA bilingual enquiry service (1-800-665-0354) is available during regular and evening hours of service.

  50. Correspondence to CRA Benefit applications and review process: Address to local tax centre • found on the taxpayers CCTB or GST/HST credit notice, notice of assessment or on the CRA website at: www.cra-arc.gc.ca/benefits/address Appeals Branch (postal codes starting with A-P) • Eastern Appeals Intake Centre Sudbury Tax Service Office 1050 Notre-Dame Ave. Sudbury, ON P3A 5C1