Definition of Eligible Dependent Tax Credit
The Eligible Dependent Tax Credit, or the Equivalent-to-Spouse Credit, is non-refundable in Canada. It’s designed to relieve single parents or individuals supporting a dependent financially. This credit recognizes the extra financial burden placed on a single-income household.
How the Eligible Dependent Tax Credit Works in Shared Parenting
In shared parenting situations, the Eligible Dependent Tax Credit becomes more complex. Only one parent can claim the credit in a tax year, even if the child spends equal time with both parents. The parent who claims the credit should be primarily responsible for the care and upbringing of the child. If parents dispute who should claim the credit, the Canada Revenue Agency (CRA) will make the final decision.
Eligibility Criteria for the Tax Credit
You must meet several criteria to qualify for the Eligible Dependent Tax Credit. For example, you must be single, divorced, separated, or widowed, and you must have a dependent living with you who is under 18 or has a physical or mental impairment. In addition, the dependent could be your child, grandchild, parent, or grandparent.
How to Apply for the Eligible Dependent Tax Credit
Applying for the Eligible Dependent Tax Credit involves filling out the appropriate section of your income tax return. In addition, you must provide information about your dependent, including their net income. Note that the amount of the credit may be reduced if your dependent has income.
Common Misconceptions and Mistakes
One common misconception is that both parents can claim the Eligible Dependent Tax Credit in a shared parenting situation. However, only one parent can claim the credit per tax year. Another common mistake is not understanding that the credit is non-refundable. This means it can reduce your tax payable to zero, but you won’t get a refund for the difference if the credit is more than your tax payable.
Do Both Parents Claim Dependents?
In the Eligible Dependent Tax Credit, both parents cannot claim the same dependent in the same tax year. However, parents can alternate who claims the credit each year. This arrangement should be made in the child’s best interest and each parent’s financial situation.
What is Shared Custody for Tax Purposes?
Shared custody for tax purposes refers to situations where a child lives more or less equally with both parents, typically spending at least 40% of the time with each parent. In these situations, both parents may be eligible to receive the Canada Child Benefit for the same child, but one parent can only claim the Eligible Dependent Tax Credit.
