One of life's major milestones is having your first child. But when you're waking up at 2:00AM to a fussing baby or a scared child telling you there is a monster under their bed, tax planning is probably the last thing on your mind. A Crowe MacKay advisor can explain all of the available tax deductions, tax credits or tax programs that your family is eligible for.
Here are the top 10 tax items that all parents should be aware of:
1. Universal Child Care Benefit ("UCCB")
This taxable benefit is for parents that have children under the
age of 18 and is designed to support Canadian families' child
In order to receive the UCCB payment:
a) You must live with the child and the child must be under 18;
b) You are the person most responsible for the child's upbringing and care;
c) You are a resident of Canada; and
d) You or your spouse/common law partner must be a Canadian citizen, permanent resident, protected person or temporary resident (whom has lived in Canada throughout the past 18 months AND have a valid permit for the 19th month).
The UCCB is paid to an eligible individual regardless of the child going to child care or receiving care at home. Effective January 1, 2015, the UCCB is $160 per month for each child under six, and $60 per month for each child between the ages of six and 17. If your child has turned six or 18 during the year, your UCCB payment will be reduced.
If you have to repay a UCCB payment, due to an overpayment, you
are then eligible to include this as a deduction on your personal
tax return, since you would have already included this in your
Click here for more information on this government program.
The new Liberal government proposes to eliminate the UCCB and introduce a new Canada Child Benefit. It is not known when these changes will take place.
2. Canada Child Tax Benefit ("CCTB")
This non-taxable benefit is for parents that have children under the age of 18. The CCTB is calculated using the adjusted family net income which takes into account both parents' income The Canada Revenue Agency ("CRA") administers the provincial/territorial child tax benefits associated to the CCTB, therefore the payment made to an eligible individual will include both the federal and provincial/territorial portions. Once a family's net income is greater than $118,251 they no longer receive the federal portion of the CCTB, but may still be eligible for the provincial/territorial benefit. For example, the total credit for a British Columbia family with one child under six and with an adjusted family net income of $60,000 would be $152 per month.
3. Child Care Expense Deduction
Child care costs are a deduction from income for tax purposes rather than a tax credit. This allows the taxpayer to use these expenses to save tax at the taxpayer's marginal tax rate rather than at the lowest tax rate, i.e. where non-refundable tax credits are available. Generally, the child care costs are claimed by the parent with the lower net income for tax purposes. In the event that parents are separated, then each parent can claim a portion of the costs, where agreed upon.
The claim included on your personal tax return is the lessor of three amounts: 1) the basic annual limit; 2) the actual cost of child care; and 3) 2/3 of earned income.
The basic annual limits have been increased by $1,000 for the
2015 year. That means:
i) a child 6 and under, where no disability tax credit is claimed is $8,000;
ii) a child between 7 and 16, where no disability tax credit is claimed, is $5,000; and
iii) a child of any age, where the disability tax credit is claimed is $11,000.
Child care expenses for boarding school or an overnight camp are also eligible to claim as child care expenses. However, these types of child care expenses are limited to a maximum claim per week. Click here for more information about the child care expense deduction.
4. Medical Expenses Tax Credit
In addition to the traditional expenses that you have incurred during pregnancy and childbirth, there are some medical expenses that you may not know are eligible as tax credits. These include:
- Midwifery costs
- Ambulance costs
- In vitro fertility programs costs
- Baby breathing monitor costs
- Prenatal and postnatal treatments
On the other hand, some medical expenses are ineligible, including:
- Birth control devices
- Diaper services
- Maternity clothes
- Vitamins and supplements (even if prescribed)
Click here for the full list of eligible expenses.
5. Children's Fitness Tax Credit
In 2014, the Children's Fitness Tax Credit increased to $1,000 from $500. Taxpayers are eligible to accumulate expenses incurred up to $1,000 for activities that promote fitness for their children during the year. Examples of eligible expenses are swimming lessons, soccer, and bowling. In 2015, the child fitness credit became refundable, which means that the credit could result in a refund (or increased refund) for the taxpayer.
Click here for further information on eligible and ineligible activities.
6. Children's Art Amount Tax Credit
Taxpayers are eligible to accumulate expenses incurred up to $500 for programs of an artistic, cultural, recreational or developmental activity during the year. Examples of eligible expenses are singing, piano or dance lessons. This credit is a non-refundable credit, meaning that a taxpayer cannot receive a refund if claimed and the credit is in excess of the amount taxes payable.
Click here for further information on the eligible and ineligible activities.
7. Family Tax Cut
Continuing for 2015, the Family Tax Cut is a non-refundable credit that allows taxpayers to notionally split income and transfer an amount from the higher income earner to the lower income earner, to a maximum of $50,000. Since an amount of income is not actually transferred, claiming the credit does not affect either taxpayers taxable income. The maximum credit available for the Family Tax Cut is $2,000 and can only be claimed by one taxpayer. It cannot be shared. This shifting of income will not affect the GST credit, CCTB or other federal or provincial/territorial benefits and tax credits like pension splitting does.
Within the 2015 federal budget, the government retroactively allowed the transfer of education related tax credits to not affect the calculation of the Family Tax Cut. Therefore, you may see a refund cheque in the next few months when the CRA automatically adjusts your return.
It should be noted that the new Liberal government has stated that it will get rid of the Family Tax Cut and will introduce a new Canada Child Benefit. It is not clear when these changes will be made.
8. Adoption Expenses Tax Credit
As an adoptive parent, you are eligible to claim expenses incurred when adopting a child under the age of 18. The maximum claim available for taxpayers beginning in 2015 is $15,000. You are only able to include the adoption expenses that were incurred during the adoption period.
The adoption period begins at the earlier of i) when the application has been made to a Canadian court, or ii) an application is made for registration with an adoption agency licensed by a provincial/territorial government; and
The adoption period ends when i) an adoption order is issued by a government in Canada or ii) when the child first lives with you permanently.
Some of the eligible adoption costs include fees paid to an adoption agency, legal fees related to the adoption order, and mandatory expenses paid for the child's immigration.
9. Tax Planning Opportunity – Registered Education Savings Plan ("RESP")
A RESP is an investment vehicle that allows you to save for your children's post secondary education. The process to set up a RESP is simple, you only need your child's social insurance number (SIN). You will need to work with your financial advisor to grow the investment, by putting your designated amount into the best available investment option.
Along with your contribution, the government provides a Canada Education Savings Grant (CESG) to increase your investment. The government will contribute up to a maximum of $500 per year per child on your first $2,500. This is based on 20% of the annual contributions made to all RESPS available for the beneficiary. This means that an annual $2,500 contribution in your child's RESP is a $3,000 investment overall.
Generally, the payments that are made to a RESP are not deductible to the person making the contribution. However, there are special rules that allow the RESP to be transferred to a Registered Retirement Savings Plan (RRSP) in the future. You should discuss this option with your financial advisor. When the beneficiary of a RESP is ready to use the funds for post secondary education, the taxable portion of the amount withdrawn is taxed in the hands of the beneficiary, which will typically be at a lower tax rate. Be aware that if the funds are not used for post secondary education purposes, the CESG amount that was received by the government will need to be returned.
One RESP option that some individuals may not be aware of is the family plan, which allows you to have more than one beneficiary in a plan. The main advantage is that if one of your children does not use the funds for post secondary education, it can be transferred to the other child.
Click here for more information on RESPs.
10. Automated Benefits Application ("ARA")
When you have your first child or have an upcoming birth, it is beneficial for you to sign up and complete the Automated Benefits Application ("ARA"), a partnership between the CRA and Vital Statistics Agency ("VSA"). This can only be executed when you give consent to the government. The ARA allows parents to start receiving benefits, where eligible, once a newborn is registered with VSA and consent is given by the mother. The benefits that the mother of the child will apply for once consent is given are the UCCB, CCTB and any related provincial/territorial benefits mentioned earlier. This way, you don't have to spend time registering for each benefit separately and the funds will start arriving, enabling you to spend extra time with your child.
As you can see, there are multiple government programs that are available for families. The points noted above are general summaries of each option and further research or discussions should be completed. So next time you have a scared child come to you during the night, continue telling them your bad Dad jokes (How do you make a Kleenex dance? Put a little boogie in it!), and let your Crowe MacKay advisor deal with your taxes. If you have any questions, contact your local Crowe MacKay office.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.