Single parents with custody receive some substantial tax savings and the Canada Revenue Agency will sometimes ask for proof of custody.
The Canadian tax system is based on self-reporting. When you sign your return, you are basically promising that you have declared all your income and claimed your credits correctly. But the Canada Revenue Agency does implement some checks to make sure that you are reporting your income tax properly.
Over the summer and beyond, the CRA will match income slips against returns using your Social Insurance Numbers to make sure you claim all of them. They will ask thousands of Canadians for additional information or receipts to prove their credits or deductions. The CRA tends to focus on the claims that result in bigger tax savings. So if you are a parent and your child transferred tuition credits to you, you need to have the signed T2202A Form because the CRA will ask for it. Same with moving expenses and childcare expenses since claims can result in substantial tax savings.
Over the last few years, more single parents are finding that claiming the amount for eligible dependent (AED) for one of their children can also attract the attention of the CRA. Often called the equivalent to spouse, the AED results in nearly $1,700 in federal tax savings with more in provincial tax savings so it is big credit for single parents to claim. But it also means the CRA is requesting proof of custody more often.
As with any credit reviewed by the CRA, as long as you can supply the correct documentation within the CRA's deadline, there should be no issue with the review and you don't need to worry. But for single parents, proving custody is not as simple as providing a receipt yet you still only get 30 days to provide the documents to the CRA.
The CRA request could be to include a copy of the birth certificate as well as a letter from your child's school or family doctor to prove they are living at the same address. It seems simple but if you receive a request from the CRA in July, getting anything from your child's school is more challenging. And many people who could help with your documentation are on vacation. Collecting the documents can be time-consuming and even though your custody of the children seems obvious, you need to respond with the right paperwork to prove you are eligible.
If you do not provide the documents, the CRA will not only reassess your AED claim but your Canada Child Tax Benefit may be affected. Without the supporting paperwork within the deadline, the CRA will assume you do not qualify and will re-calculate your return accordingly. You can undo it all with the right documentation and filing an adjustment but that can be a lot more work and delay you receiving your regular benefits.
Single parents are not required to have this information before they claim the AED. But I do encourage them to have it ready. Based on my experience, there seems to be an increase in the number of parents being asked to prove custody in the last few years. It is a significant tax savings to it makes sense that the CRA would want to make sure only eligible parents are claiming it.
Reviews of the AED and other credits are random and the CRA is entitled to perform the check. Even though your children obviously live with you, you need to prove it to the CRA if they ask. And unfortunately, the CRA needs more proof than your large laundry pile or toys everywhere. They may want a third-party confirmation so be prepared if they come asking.
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