written on behalf of Feigenbaum Law
While tax obligations and benefits financial benefits collected from the government might seem like distinct responsibilities and benefits, it can be the case that a taxpayer’s situation might impact their own or their family’s available benefits. A recent decision from the Tax Court of Canada shows how this can be the case. In the decision, a taxpayer appeals a decision to claw back Canada Child Tax Benefits that were paid to her after her husband was found to have underreported his income.
Canada Child Tax Benefit payments are reassessed
The taxpayers involved in the issue are a husband and wife. The question at hand was whether the wife was eligible to receive the Canada Child Tax Benefit (CCTB).
The husband and wife were married in 2001 and have two children together. During the tax years in question (2011 and 2012), the wife reported no income the first year and $125 the second. The husband reported $20,800 the first year and $16,901 the second year. As a result, they were eligible to receive CCTB payments of $6,913 and $7,051 in each year respectively.
However, following an of her husband’s business and income from the business, the family’s net income was reassessed at $271,743 and $115,460 in 2011 and 2012.
What led to the reassessment?
The husband and his brother owned a restaurant together. When the brother moved away from Canada, the husband took over the operations of the business. Following the restaurant’s failure to file GST/QST returns from 2010-2012 while also reporting losses from 1999 to 2012. The husband was also selected for an audit due to his low reported income while supporting a family.
The business operated mainly in case, and only deposited payments into its bank account when customers paid with bank cards. All cash was kept out of the bank and was used to pay employees and suppliers. The husband also used this cash for day-to-day living expenses.
The audit used an approach where income was determined by calculating how many supplies were purchased by the restaurant. That number was used to determine how much food they sold, and what their profits were. After doing this for a one-month period, the husband’s income was then assessed for the full year. It was determined that the husband made $250,943 in 2011 and $98,559 in 2012.
The husband did not file an objection to the reassessments and stated that no evidence was available to support him even if he did.
Wife claims husband’s reassessment should not impact CCTB payments
The wife’s position was that even if her husband’s income was determined to be higher than what is allowed to receive CCTB payments, she should continue to receive them because she was not involved in his business and did not receive any income or benefits from the business.
However, the court turned to the Income Tax Act, which clearly states that in calculating CCTB, the income of the individual claiming the CCTB must be combined with that of the spouse if they were cohabitating. The net income required to be eligible was limited to $47,745 in 2011 and $49,763 in 2012. As a result of the reassessment, the family was well above the threshold to be ineligible for CCTB payments.
Contact our experienced tax lawyers for a custom solution to your personal tax planning needs. Our unparalleled knowledge of US and Canadian tax makes us leaders in this field. Contact us about making your transition across the border as smooth as possible. We offer services to clients in the US, Canada and around the world. Contact us to learn more about how we can help or call us at (416) 777-8433 or toll-free at (877) 275-4792.