Canada: Tax Tips 2016: For The Family

Last Updated: December 13 2016
Article by Crowe Soberman's Tax Group

From our annual Tax Tips guide, here are the tips and suggestions for the Family for the year 2016.

Tips: If you have disabled or infirm dependents

1. The Registered Disability Savings Plan (RDSP) is a savings plan that is intended to help parents and others save for the long-term financial security of a person who is eligible for the Disability Tax Credit.

  • Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59 years of age.
  • To help you save, the Government pays a matching grant of up to $3,500. You are allowed to carry forward unused grant entitlements for up to ten years.
  • Contributions that are withdrawn are not included in the income of the beneficiary, although the Canada disability savings grant, Canada disability savings bond, and investment income earned in the plan will be included in the beneficiary's income for tax purposes when paid out of the RDSP.
  • There is no annual limit on amounts contributed to an RDSP of a particular beneficiary, but the overall lifetime limit is $200,000.
  • A deceased individual's RRSP or RRIF can be transferred tax-free into the RDSP of a financially dependent infirm child or grandchild.

2. For 2016 and subsequent tax years, the government has implemented a new non-refundable Home Accessibility Tax Credit.

  • The tax credit is available for eligible expenses incurred in making a home more accessible to individuals aged 65 or older or to individuals who are disabled or infirm.
  • Either the individual who incurred the expenses or the individual for whom the expenses are made can claim the tax credit. The individual who incurred the expenses can only claim the tax credit in respect of expenses incurred for his or her spouse or common-law partner, or for disabled or infirm dependants.
  • You can claim up to $10,000 in eligible expenses under the Home Accessibility Tax Credit, resulting in a non-refundable tax credit worth up to $1,500. Expenses eligible for the claim must be permanent and non-routine renovations to the home. The alterations must allow the individual for whom the expenses were incurred to be mobile within the home and/or reduce the risk of harm to the individual within the home.

Tips: If you have young children

3. Save for your child's or grandchild's education with a Registered Education Savings Plan (RESP).

  • An RESP is a trust arrangement that earns tax-free income to be used to fund the cost of a child's or grandchild's post-secondary education. Contributions to an RESP are not deductible for tax purposes and withdrawals of capital from the RESP are not taxed. The beneficiary is taxed on the income portion when withdrawn from the RESP for the purpose of funding his or her post-secondary education. While at school, the child or grandchild tends to have relatively low sources of other income, and, as a result the income is usually taxed at lower rates, if at all.
  • For RESP contributions in 2016:

    • There is no annual contribution limit;
    • The lifetime contribution limit is $50,000 per beneficiary; and
    • A federal government grant of 20% of annual RESP contributions is available for each beneficiary under the "Canada Education Savings Grant." The maximum annual RESP contribution that qualifies for the federal government grant is $2,500.

4. Maximize child-care expense deduction and consider the federal Children's Fitness Tax Credit, the Ontario Children's Activity Tax Credit, and the Children's Art Tax Credit.

  • If you have a child under the age of 16 enrolled in a program of physical activity, you may be able to claim related expenses under the refundable federal Children's Fitness Tax Credit (CFTC). Effective for 2016 and future tax years, the Liberal Government has reduced the limit to $500 from $1,000. Costs eligible for the credit include fees for administration, instruction, rental of required facilities, and certain uniforms and equipment.
  • The maximum amounts deductible for child-care expenses are $11,000 for a disabled child, $8,000 for children under age seven, and $5,000 for other eligible children (generally, children aged 16 and under). In most cases, the spouse with the lower net income must claim the child-care expenses against his or her earned income.
  • You will not be able to claim the expenses incurred for the child's physical activity program for both the child-care expense deduction and the Children's Fitness Tax Credit.
  • If you have a child enrolled in a qualifying activity, you may be able to claim up to $560 of eligible expenses under the refundable Ontario Children's Activity Tax Credit. You may receive a refundable tax credit worth up to $56 per child under 16 years of age, or up to $112 for a child with a disability under 18 years of age. This tax credit covers eligible fitness and non-fitness activities.
  • If you have a child enrolled in a prescribed program of artistic, cultural, recreational or developmental activity, you may be able to claim up to $500 in 2016 of eligible expenses under the non-refundable Children's Art Tax Credit (CATC). You may receive a non-refundable tax credit worth up to $75 per child under 16 years of age, or up to $150 for a child with a disability under 18 years of age. Costs eligible for the credit include costs of registration or membership, including administration, instruction, and the rental of facilities or equipment.

5. Apply for the Canada Child Benefit (CCB)

  • The Liberal Government has merged the Universal Child Care Benefit (UCCB) and Canada Child Tax Credit (CCTB) in to a new Canada Child Benefit (CCB). The CCB is a non-taxable benefit based solely on the family's income from the previous year. The program provides parents with monthly benefits of up to $533.33 ($6,400 annually) for children aged six and under and up to $450.00 ($5,400 annually) for children aged 6 to 17.
  • It is expected that families making below $150,000 will receive more in monthly child-benefit payments than they were otherwise receiving under the UCCB and CCTB programs. However, the benefit is gradually clawed back for families making over $30,000 and fully eliminated for families making over $200,000 annually.
  • The application for the CCB can be made online through the CRA "My Account" when you complete your child's provincial birth registration form or by completing Form RC66. More information can be found at http://www.cra-arc.gc.ca/bnfts/ccb/pplctn-eng.html.
  • If your family already receives the CCTB or UUCB, an application for the CCB is not necessary but both parents must have filed a tax return.
  • The CCB is effective for 2016 and subsequent taxation years.

Tips: Income splitting with family members – other opportunities

Consider the following legitimate means of shifting income to family members whose taxable income is below the lowest tax bracket, approximately $45,282. This will allow them to take advantage of certain non-transferable credits as well as lower tax rates.

6. Income splitting with children over the age of 17 ("adult children") :

  • Shift investment income by gifting money to your adult children or to a trust for their benefit, if you wish to maintain control.
  • Lend funds to or purchase shares in a corporation whose shareholders are your adult children.

7. Income splitting with adult or minor children:

  • Purchase appreciating assets in the names of your children regardless of their ages. Capital gains will be taxed in their hands, not yours.
  • Lend money to your children with actual interest payable at the prescribed rate. Earnings in excess of this rate will be taxed in their hands.

8. Income splitting with your spouse or common-law partner:

  • Lend money to your spouse or common-law partner to earn business income.
  • Have the higher-income spouse or common-law partner incur all household expenses, thus allowing the lower income person to acquire investments, which could be taxed at a lower rate.
  • Lend money to your spouse or common-law partner with actual interest payable at the prescribed rate. Earnings in excess of this rate will be taxed in your spouse or common-law partner's hands.

Did you know?

Effective January 1, 2017, the Federal Children's Fitness Tax Credit, the Ontario Children's Activity Tax Credit and the Children's Art Tax Credit will be eliminated. Likewise, the additional amounts generally available for children eligible for the disability tax credit will also be eliminated.

Our annual Tax Tips can assist you in your tax planning presenting some quick ideas and strategies for you to employ. Please take the time to review your 2016 tax situation and call us for specific recommendations tailored to meet your needs. We will be pleased to work with you on these and other tax-savings ideas.

Click here to download a full copy of the Tax Tips 2016 Guide (PDF).

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.

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