Shared Custody and the Amount for an Eligible Dependant Tax Credit

August 2026

This article explains how that happens, and how to avoid it. It answers four questions.

• What counts as shared parenting time?
• How is child support worked out when parenting is shared?
• Who can claim the amount for an eligible dependant?
• And what can you do if your agreement is already written the wrong way?

A Note on Words

The law used to say “custody.” Since March 1, 2021 the Divorce Act and the Federal Child Support Guidelines say “parenting time” instead. ^{S.C. 2019, c. 16; FCSG s. 9, am. SOR/2020-247} The Income Tax Act, however, still uses the older language and refers to a “shared-custody parent.” ^{ITA 122.6} You will meet both terms, and for our purposes they mean the same thing. I have used “shared parenting time” below except where I am quoting the tax legislation.

Shared Parenting Time and Child Support

Section 9 of the Federal Child Support Guidelines applies where each parent has the children at least 40 per cent of the time over the course of a year. In practice that means anything from a 40/60 split to an even one.

Where section 9 applies, support is not simply the table amount for the higher earner. The Guidelines require three things to be taken into account: the table amounts for both parents, the increased costs of a shared arrangement, and the means and needs of each parent and child. ^{FCSG s. 9} In most cases the starting point is that each parent owes the other the table amount for their own income. Adjustments are made where the circumstances call for them — if the parents live far apart, for instance, support may be adjusted to reflect travel costs.

The 40 per cent line matters a great deal. At 39 per cent, one parent pays the full table amount. At 40 per cent, both parents are treated as owing support to each other, and only the difference changes hands. Where the parents earn the same, that difference can be nothing at all. A single percentage point of parenting time can change the support obligation completely.

An example. Two parents in Prince Edward Island each earn $30,000 and each have the children half the time. Under the tables each owes the other $433 per month, so the amounts cancel and no money changes hands. Had one parent had the children only 39 per cent of the time, the other would have been paying $433 a month.

Be clear that this is an unusual example, because it assumes equal incomes, which seldom happens. In a shared parenting arrangement child support is an entitlement even where the shared time is exactly half, if the parents’ incomes differ. What follows explains why it matters that the parents pay each other, rather than offsetting the amounts — whatever the figures are.

A line had to be drawn somewhere, and the Department of Justice settled on 40 per cent when the Guidelines were introduced in 1997. I sat on the Advisory Committee on Child Support for the federal Deputy Minister of Justice in the late 1990s, and this threshold was much discussed. No better solution was found.

So you calculate two amounts, one for each parent. Then you have a choice: the parents pay each other their respective amounts, or the higher earner pays only the difference — what is usually called a set-off. Read the next section before you choose. The choice looks like a matter of convenience. It is not. ^{Federal Child Support Tables, am. SOR/2025-166, in force October 1, 2025}

The Amount for an Eligible Dependant

The Income Tax Act allows a separated parent who is living single to claim a credit for a dependent child living with them. ^{ITA 118(1)(b)} On the tax return it is called the amount for an eligible dependant, and I will call it the EDA below. There are other conditions I am not going to go through here, because the point of this article is what child support does to the claim.

What it is actually worth. More than most people think, because there are two credits, not one. Every province and territory has its own version alongside the federal one, and a parent who loses the federal credit loses the provincial credit with it.

For 2026 the federal credit is worth $2,303.28. Adding the provincial credit brings the total to roughly $3,368 in Prince Edward Island, $3,296 in Ontario, $3,031 in Nunavut and $4,125 in Alberta. ^{Maximum claim $16,452 at 14%, reduced from 15% by Bill C-4}

That is every year, for as long as support is payable. A family that gets this wrong when the children are ten will be out roughly $27,000 by the time the younger one finishes school. From infancy, more than $60,000.

Why Child Support Gets in the Way

Section 118(5) of the Income Tax Act says that a parent who is required to pay child support for a child cannot claim the EDA for that child. On its own, that rule would produce an absurd result in shared parenting: both parents owe support to each other, so neither could claim, and the credit would simply vanish.

Parliament saw this and added subsection 118(5.1) in 2007 to fix it. ^{S.C. 2007, c. 35, s. 36(2)} It says that where the only reason nobody can claim is subsection 118(5), that subsection is ignored — so one of the parents can claim after all. The Canada Revenue Agency has described the situation it was meant to cure as an “unintended result.” ^{CRA Technical Interpretation 2010-0369571E5}

Here is the trap. The rescue in 118(5.1) only works if neither parent can claim. If your agreement says only one parent pays — a set-off — then only that parent is caught by 118(5). The other parent is not required to pay anything, so the other parent can still claim. Somebody can claim, so the rescue never operates, and the paying parent is simply out of luck.

Two families with the same incomes, the same parenting time and the same money moving between them are taxed differently, purely because of how the agreement was drafted.

The Wording That Matters

Your agreement or order must show that each parent has a legal obligation to pay the other. Something along these lines, subject to your lawyer’s advice:

Do not say that only one parent will pay a set-off amount. And be careful of the half-measure: an agreement that recites both table amounts and then provides that only the difference is payable is exactly the drafting the courts have found does not work. Reciting both figures is not enough. Each parent has to be genuinely obliged to pay.

The courts have looked at this repeatedly and the answer has not changed. In Verones the Federal Court of Appeal held that where only one parent is required to pay, that parent is caught by section 118(5), and the fact that the amount was arrived at by subtracting one table figure from another makes no difference. A string of Tax Court decisions since has followed it. Judges have said, in substance, that they cannot rewrite the Act and that only Parliament can fix this. ^{Verones 2013 FCA 69; Harder 2016 TCC 197; Huneault 2017 TCC 70; Bayrack 2019 TCC 53}

If there are two or more children. Only one person may claim in respect of a given child, and no one may claim more than one EDA in a year. So where two or more children are shared and both parents are eligible, each parent claims for a different child and the family gets two credits. Under a set-off, the family gets one. This is where the real money is: with two children, a set-off costs the family a whole credit — roughly $3,368 in 2026 in Prince Edward Island — in every single year. The parents must agree on who claims which child. ^{ITA 118(4)(b)}

If there is one child. Only one credit is available whichever way the agreement is written. What changes is who gets it. With the right wording either parent may claim, and the sensible arrangement is to alternate — Parent A in even-numbered years, Parent B in odd. Under a set-off, the receiving parent claims every year and the paying parent never does. That is about half the credit lost to the payer.

One practical point: if one parent has no tax to pay, the credit is worth nothing to them. Where that is so, let the other parent claim it.

When a Set-Off May Still Be the Right Choice

There is a real reason to use a set-off, and it is not convenience. It is the risk of not being paid.

Suppose one parent owes $442 a month and the other owes $342. Under two payments, the lower earner must find $342 on the day. If the $442 cheque coming the other way bounces, or is deliberately withheld, that parent is short by the full $442 for the month. Under a set-off, only $100 moves, and a missed payment costs $100.

If there is genuine doubt about whether payments will be made, a set-off protects the parent least able to absorb a shortfall, and that may matter more than the tax credit. It is a judgement about the person you are separating from, and only you can make it.

There are other situations in which a single set-off payment may be the right answer, and losing the credit is simply a cost of it.

• Where contact needs to be kept to a minimum. If there has been abuse or intimidation, a monthly obligation running in both directions creates a monthly occasion for contact and for argument. One payment in one direction is safer.
• Where the lower earner cannot find the gross amount each month. Paying $342 on the first of the month while waiting for $442 to arrive is straightforward on paper and difficult on a tight budget. A set-off removes the timing problem.
• Where being recorded as a support debtor would cause harm. Under a reciprocal arrangement both parents owe support, so both can fall into arrears — including the parent who is owed more than they owe. In some provinces an order is filed automatically with the maintenance enforcement program unless both parties opt out, and arrears can carry consequences well beyond the money.
• Where the difference is very small. If the net figure is $40 a month, exchanging two payments of several hundred dollars to arrive at it may not be worth the trouble, whatever the tax result.

None of these is a reason to be careless about the wording. They are reasons to make the choice deliberately, knowing what it costs. The point of this article is that most families are not making a choice at all — they are accepting a form of wording without being told it has a price.

A “side agreement” is not a reliable answer. The idea is that the formal agreement requires two payments while a separate understanding provides that only the difference actually moves. The Canada Revenue Agency has said such an arrangement may be acceptable. “May” is doing a lot of work in that sentence, and I would not rely on it. Where the risk of non-payment is real, use a set-off with your eyes open and accept the tax cost.

If Your Agreement Is Already Written the Wrong Way

Read this part first if you already have an agreement. It is the part with a deadline attached.

You can amend the agreement. If both parents sign a new document requiring each to pay the other, the Canada Revenue Agency will accept it and the credit becomes available.

But it only works going forward. The Agency will not reassess earlier years on the strength of an amendment made today. Every year you have already filed under a set-off agreement is gone, permanently, and every further year you leave it is another year gone. If this article applies to you, the amendment is worth doing this month rather than next year.

Two honest cautions. Amending requires your former partner to agree, and if the relationship is difficult that may not be realistic — there is no way to compel it. And if your support is set by a court order rather than an agreement, you cannot simply rewrite it; you would need to go back to court, at your own expense, and a judge may not vary a working order for tax reasons alone.

If you are in that position, you are not doing anything wrong and there is nothing further you can do about it yourself. It is a defect in the legislation, and it is the reason for the last section of this article.

Why This Makes No Sense

The child support tables themselves assume the credit is available. The tables were not invented; they were calculated. The formula begins with statistical data on what families at various income levels actually spend on their children — spending that rises with income, so a higher earner pays more than a child strictly costs — and then works that figure back through the tax system to arrive at a monthly amount. The Department of Justice technical report describing that formula confirms that the credit — then called the equivalent-to-spouse deduction — is one of the amounts built into the receiving parent’s tax calculation. ^{Justice Canada, CSR-1997-1E} So the support figures already assume the credit is in play. When a set-off then denies it, the paying parent is left short by an amount the tables assumed they would have.

And Parliament has already fixed this exact problem once, for the same families. The Canada Child Benefit used to run into a mismatch regarding the shared parenting time definition. The court interpretation of the tax legislation and the Guidelines drew the line for shared parenting in different places. In 2019 Parliament amended the definition of “shared-custody parent” for income tax purposes so that it matched the 40 per cent standard in the Guidelines. ^{ITA 122.6} The benefit is now divided between shared parenting households using the same definition. The EDA eligibility was left exactly as it was.

So one federal benefit is shared between parents who share the care of a child, and another is given entirely to whichever of them happens to be named in the agreement as the one not paying. Both rules sit in the same Act.

Where Things Stand

I have been raising this with the federal government for many years. The Minister of Finance of the day, the Honourable Bill Morneau, wrote to me on March 21, 2019 saying that the government “continues to examine the tax system to ensure that it is fair and effective,” that changes “would need to be carefully considered in terms of the impacts on different groups,” and concluding that “although our Government continues to monitor the issues you have raised, we are not prepared to recommend any changes at this time.”

Nothing has changed since. The Canadian Bar Association put the same point to the Minister in 2018 and again in 2020. The courts have said repeatedly that only Parliament can act. I am still asking for an amendment, and am now working with colleagues from the Academy of Financial Divorce Specialists to seek a technical change to the legislation. My submissions to date are set out in my article titled, Shared Custody and Income Tax: A Record of My Submissions to Government.

What This Article Does Not Cover

This is a summary of one narrow problem, and there is a good deal it leaves out.

• The other conditions for claiming the EDA — your marital status, who the child lives with, whether anyone else is claiming for the same child, and whether you are claiming for another dependant.
• Special or extraordinary expenses under section 7 of the Guidelines, such as childcare, orthodontics or activities, which are dealt with separately from the table amounts.
• Spousal support, which follows different rules and different tax treatment.
• Situations where a parent has remarried or has a new common-law partner, which can affect eligibility.
• The Canada Child Benefit, the disability tax credit and the Canada caregiver credit, which have their own rules for shared parenting.
• Provincial variations. The rules described here are federal, but the amount at stake depends on where you live.

And a general caution. The Canada Revenue Agency assesses each case on its own facts, and usually asks to see the agreement when the credit is first claimed. Wording that worked for someone else may not work for you. Have your agreement reviewed before you sign it, not afterwards.

Concluding Remarks

It is a shame that this credit, which matters most to families of modest means, should turn on a drafting point that almost nobody knows about until it is too late. Every child-related credit and benefit ought to be shared in the same way when parenting is shared, and “shared parenting” ought to mean the same thing in every piece of federal legislation. At present it does not, and so far the government has not been prepared to change it.

There is always hope that common sense will prevail and the law will be changed. In the meantime, get the wording right — and if you are reading this some time after it was written, check whether anything has changed.

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Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum