Opposition finance critic Lisa Raitt has raised a new concern about the planned changes to federal child benefits, namely, what happens in cases of separation or divorce? It’s actually a question that should be raised more often in social policy.
Anyone who has ever been through a separation or divorce involving children will tell you, it’s already hard enough without having to worry about the minutiae of benefits rules, tax law and previous court decisions. Anything that policy-makers can do to both make the rules simple and, more important, prioritize the best interests of children should be welcomed. Ms. Raitt is absolutely correct in asserting that the budget legislation to create the new Canada Child Benefit is mum on the question of separation and divorce. Will this silence create a host of new problems in cases of separation and divorce? That seems unlikely. The old problems will simply remain. Let me explain (with a giant disclaimer that this blog is not legal advice and you should consult with a lawyer if you need information specific to your personal case).
When you separate or divorce, there are three major instances when child benefits are likely to be an issue:
1. When government is determining to whom the federal (and coordinated provincial) benefits ought to be paid and how much the benefit should be.
2. When parents, lawyers or courts are determining whether and how much one parent must pay in child support, special and extraordinary expenses and/or spousal support to an ex-spouse.
3. When the tax agency is determining changes to child benefits if and when a single parent enters into a new common-law or legal marriage or there has been another similar material change of circumstance for the eligible children.
Sometimes ex-couples will include text in their separation agreement or court order to decide who will claim benefits like the Canada Child Benefit. The Canada Revenue Agency doesn’t care. It will follow the Income Tax Act (ITA).
Section 122.6 of the Act deals with child benefits and this is the part of the legislation the government is amending to create the new Canada Child Benefit. The standalone Universal Child Care Benefit Act is being given a sunset clause and will be folded into the new benefit so I’m not going to discuss it much.
The ITA says you are eligible for child benefits if you are a parent “who primarily fulfills the responsibility for the care and upbringing of the qualified dependant” all of the time or, in cases of shared custody, “when residing with” the eligible dependent child. The CRA has methods of checking in on parents to make sure those who claim to be “primarily responsible” really are. They do things like ask to see a court order dealing with the child’s living arrangements, a child’s report card or a letter from a family doctor attesting to which parent brings the child to medical appointments. And while it may be 2016, when it comes to deciding who is “primarily responsible” for the care of the child, “if there is a female parent who lives with the child,” CRA says, “we usually consider her to be this person.” If you show CRA that you’re sharing custody on an equal or nearly equal basis, then the agency will separately pay each parent 50 per cent of the child benefits they would otherwise receive if they were the only caregiver. None of this will change under the new Canada Child Benefit based on the draft legislation before Parliament.
What about support payments? For the sake of brevity, I’m only going to deal with cases of legal marriage where the federal Divorce Act applies. Ex-spouses may be faced with (fight about) amounts for each 1) child support, 2) special and extraordinary expenses and 3) spousal support.
On child support, the law is pretty clear: parents pay on the basis of their total income as reported on their annual tax return. The Canada Child Benefit (like the Canada Child Tax Benefit before it), won’t change that calculation because it isn’t part of taxable income. The soon-to-be-cancelled Universal Child Care Benefit needed a special exemption from the calculation because it is taxable (another example of how the new benefit will be a little simpler than the old system). The Federal Child Support Guidelines give table amounts based on the payor’s income and the number of children and the province where the family lives. In cases where paying parents have tried to ask the courts to reduce the table amount because of government benefits paid to the other parent, the courts have been pretty clear “that the income of the recipient spouse or of the child is irrelevant when determining the Guideline amount payable by the paying spouse” (see for instance Kaupp v. Kaupp, 2008 ABQB 372). In other words, if you owe child support under the federal guidelines, it doesn’t matter what your ex receives in federal benefits. Again, this will not change with the new Canada Child Benefit.
On top of basic child support, divorcing parents also need to figure out ways to share costs like medical bills, sports activities and tuition, termed “special and extraordinary expenses.” In these cases, the regulations do say that the cost is supposed to be determined after applicable credits and benefits. For example, the costs of the hockey camp to be shared should take into account the value of the Child Fitness Tax Credit claimed by one of the parents—but Budget 2016 is doing away with that credit. This leaves one less thing for divorcing couples to argue about! Spousal support is supposed to be worked out after child support and the special expenses are taken of. Child benefits are supposed to be taken into account in calculating the ability to pay of each parent for both special expense and spousal support although it seems in practice not every lawyer or judge remembers to do this. The new Canada Child Benefit won’t fix the problems with determining special expenses or spousal support but it won’t make them any worse either.
Finally, what happens in cases where a single parent remarries or becomes common-law? CRA relies on parents to keep them informed of their separations and re-partnerings. If you don’t inform CRA otherwise, they’ll keep paying you the same amount until your next annual assessment for child benefits. If you are separating and are the primary caregiver to children, it’s in your interest to tell CRA ASAP so that your monthly benefits will be based on your new (and presumably lower) net family income. But if you partner-up again, CRA also wants to know. More than one formerly single parent has had a real shock in owing child benefits back to government.
For example, a single parent with two children (ages 4 and 7) and $50,000 in net income will currently get $758.33 per month from the Canada Child Tax Benefit. If that parent remarries or becomes common-law (defined federally as 12 months of cohabitation or immediately on the birth of a child), then the new spouse’s income becomes part of the calculation of net family income. Let’s say the new spouse also has $50,000 in net income and the union takes place halfway through the year. If the custodial parent forgets to report this change in circumstance, under the Income Tax Act, he or she could owe as much as $2,010 back in federal child benefits deemed to be an “overpayment.” The new Canada Child Benefit adjusts how the repayment is calculated but it doesn’t change the basic system already in place.
In sum, child benefits do create issues in cases of separation and divorce, but these aren’t new under the Canada Child Benefit. As a feminist, I’m honestly a little torn about some of these established rules.
The policy of presuming that a female parent will be the primary caregiver to receive federal benefits goes back at least to 1920’s Mother’s Allowances programs. If the money is seen as “mummy’s income” in families, this administrative measure could factor into decisions about whether and how much to work. Because we all overvalue losses relative to gains, families may feel mom needs to earn at least twice as much as what “she” (rather than the family) will lose by working more—dad’s income is actually just as relevant but labels matter. On the other hand, it is a label that recognizes that women continue to do 50 per cent more child care than men in Canada. Because it’s 2016…
The policy of excluding child benefits from the calculation of basic child support but not from special and extraordinary expenses is frankly a little incoherent. It was a long and arduous legal battle to exclude child support payments from the taxable income of recipient parents (most often mothers) and to cancel the tax break for paying parents (most often fathers). For well-off split families who receive little or nothing in child benefits, including them or not in the calculation of parental obligations toward hockey camps or braces won’t make a big difference. But I don’t understand the rationale for saying child benefits are excluded from amounts to feed, clothe and shelter your child but are included for anything beyond that. It seems that policy treats child benefits as essential income some of the time and other times as a kind of discretionary baby bonus. In practice, research keeps showing that low-income parents use these child benefits in ways that really do benefit their children—not for “beer and popcorn.”
Finally, the “spouse in the house” rule that automatically reduces child benefits and demands repayment is consistent with a principle of individual assessment for taxation and family assessment for benefits. But in practice, it does disadvantage some former single-parents by reducing their child benefits on the assumption that the new spouse will be contributing all of his or her income to the welfare of the reconstituted family. However, this new spouse may have no ongoing legal obligation toward the children of the prior marriage. Also, let’s not forget that single-parent families have a median total income less than half that of couple families and rates of low-income are still far higher among single-parent families compared to other family types.
The Liberals have promised that the new Canada Child Benefit will make a meaningful dent in child poverty rates in Canada. I don’t know how much of that impact is expected among single-parent families. Regardless, the new benefit isn’t going to make getting divorced any harder than it already is.