Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1- Whether a person has been adopted in fact and is "wholly dependent" under paragraph 118(1)(b). 2- Whether a person is a child under the extended meaning of "child".
Position: 1- Question of fact but likely not. 2- Question of fact but appears not.
Reasons: 1- Question of fact as to whether there has been a de facto adoption. Question of fact whether the person is "wholly dependent" under paragraph 118(1)(b) but likely not given that the person receives disability support payments from a government agency and pays rent for room and board. 2- Paragraph 252(1)(b) requires the person to be "wholly dependent on the taxpayer for support" and for the taxpayer to have "custody and control" of the person. Both requirements are questions of fact. However, the "wholly dependent on the taxpayer for support" requirement does not appear to be met given that the person receives disability support payments from a government agency and pays rent for room and board.
XXXXXXXXXX 2009-035277
C. Tzortzis
July 27, 2010
Dear XXXXXXXXXX :
Re: Adoption in Fact and Extended Meaning of "Child"
This is in response to your letter dated September 23, 2009, which was addressed to the Winnipeg Tax Centre and forwarded to us.
In your letter, you are inquiring whether a formal adoption is required in order to recognize a particular individual as your dependant. Your inquiry is made in the context of a desired transfer of the disability tax credit to you. You state that the particular individual is an adult who lives with you and who is entitled to the disability tax credit but who does not have sufficient income to fully utilize the disability tax credit. You also state that you are not his legal or natural parent. In our telephone conversation of February 26, 2010 (Tzortzis/XXXXXXXXXX), you indicated that the individual receives disability support payments from a government agency and pays you rent for room and board.
It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advanced income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency publications can be accessed on the CRA Web site at
www.cra-arc.gc.ca. Since your inquiry concerns an actual situation involving questions of fact, it should be dealt with by your local tax services office. If you wish to have the CRA review your actual situation, you should submit all of the relevant information and documentation to the particular tax services office serving your area, a list of which is available on the "Contact Us" page of the CRA Web site. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.
Our Comments
In order for a person to transfer his or her unused disability tax credit to an individual, amongst other conditions that must be met, the individual must be entitled to claim (or could have claimed but for certain specific restrictions), in respect of that person, either the equivalent-to-spouse credit, the caregiver credit, or the infirm dependant credit. As each of these credits requires further conditions to be met, we have narrowed the discussion to two possible scenarios that may be applicable.
Adoption in Fact
If all other conditions are met, a person may transfer his or her unused disability tax credit to an individual if it is determined that the individual has adopted, either legally or in fact, that person as their child and the person is, at any time in the year, wholly dependent for support on the individual or the individual and other persons, as the case may be, who maintain the self-contained domestic establishment in which the person lives.
The CRA's general views regarding adoption are contained in Interpretation Bulletin IT-419R2, Meaning of Arm's Length. Specifically, in paragraph 10, the bulletin states that adoption includes a legal adoption and an adoption in fact. Whether a factual adoption has occurred at a particular time is a question of fact and has to be determined based on a consideration of the particular circumstances. The fact that an individual is appointed guardian of a person does not, in and of itself, constitute adoption in fact. For a de facto adoption to exist, generally, the "adoptive" parent must exercise parental care and guidance on a continuing basis. The factors to consider in determining whether a certain relationship between an individual person and a child constitutes an adoption in fact are actual control and custody, an exercise of parental care and responsibility on a continuing basis, dependency, and proximity to each other. It is our view that occupying the same residence may be a factor in support of adoption in fact, but it is not determinative, by itself, of a finding that such a relationship exists.
The word "support" is not specifically defined for income tax purposes and, therefore, takes its ordinary meaning. In general terms, support involves the provision of the basic necessities of life such as food, shelter, and clothing. Support is generally something that is given voluntarily but includes support under a legal commitment. Whether or not an individual supports another individual is a question of fact. For example, if an individual contributes amounts to a household, and such amounts can be regarded as being for the individual's own accommodation and meals, they should not be considered to have been paid by the individual for the support of another person in the household.
In our view, it is a question of fact as to whether a person is wholly dependent on another for support in a particular case. It is possible in certain circumstances that a person might be considered wholly dependent notwithstanding that he or she had income. However, where the income is significant and received steadily throughout the year, it may be indicative that the person is not wholly dependent on another individual for support. Similarly, in our view, support provided wholly or in part by an agency to a person may indicate that the person is not wholly dependent on another individual for support.
Extended Meaning of Child
If all other conditions are met, a person may transfer his or her unused disability tax credit to an individual if the person is the individual's child. A person may be considered the child of an individual under the extended meaning of child found in the Income Tax Act. Under this extended meaning, a child of an individual includes a person who is wholly dependent on the individual for support and of whom the individual has, or immediately before the person attained the age of 19 years had, in law or in fact, the custody and control of the person.
In order for a person to be considered wholly dependent on an individual for support under the extended meaning of child, generally, the person must be financially dependent on the individual such that the individual provides almost entirely for the person's well being.
The second requirement is that the individual has, or immediately before the person attained the age of 19 years had, in law or in fact, the custody and control of the person. It is a question of fact whether an individual has the custody and control of a person. In general terms, custody and control involve the right of determining the residence, protection, care (physical and moral), education, and religion of the child. It also requires that the child submit to parental control.
Generally, in our view, a person would not be considered wholly dependent on an individual for support under the extended meaning of child where that person receives disability support payments from a government agency and pays rent to the individual for room and board. Thus, as one of the requirements would not be met, such a person would not be considered the child of the individual under the extended meaning of child.
However, if an individual were to legally adopt a person, then that person would be considered the individual's child under the Income Tax Act because the individual would then be the person's legal parent.
We trust that these comments will be of assistance.
Yours truly,
G. Moore
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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