Guide to family tax credits and deductions

It’s that time of year again — your physical and virtual mailboxes are full of forms and notifications from every financial institution with which you do business. Yes, it’s tax time. But you can minimize the tax hit with our list of deductions and credits often available to families with minor children.

Click on for federal deductions and credits, as well as new and additional information for all provinces and territories.

This credit allows parents to deduct 15% of the cost of arts programs, to a maximum of $500 per child, from their tax bill — a potential savings of $75 per child. The child must have been younger than 16 at the beginning of 2012. Permitted programs must focus on artistic, cultural, recreational or developmental activity — such as literary arts, visual arts, performing arts, music, media, languages, customs, heritage, wilderness and the natural environment, interpersonal skills training, and tutoring. 

This credit can be split between the parents to achieve the greatest tax reduction, and is in addition to the federal children’s fitness credit. (The same program expenses cannot, however, be used to claim both this credit and the fitness credit.) You will need a receipt from the program provider. 

This credit allows parents to deduct 15% of the cost of fitness programs (to a maximum of $500 per child) from their taxes — once again, a potential savings of $75 per child. As with the arts credit, the fitness credit may be split between the parents and the child must be under 16 years of age. Permitted programs must include a significant amount of physical activity contributing to cardio-respiratory endurance, and must also focus on one or more of muscular strength, muscular endurance, balance or flexibility. Obtain a receipt for your file.

A parent can take a tax credit equal to 15% of the cost of public transit passes used by the parent, his or her spouse and/or children under the age of 19. There are many rules surrounding this credit — see cra-arc.gc.ca for more details. Make sure you keep your receipts and passes!

 

This particular deduction must be taken by the spouse with the lower income (zero income included), and cannot be greater than 2/3 of that spouse’s earned income. There are other limits — the child care expense deduction cannot be more than $7,000 per child six years old or younger, and maxes out at $4,000 for each child between seven and 16 years.

Don’t forget that this deduction encompasses more than just daycare and nanny expenses. The following are also included: day camps; child care component of private school tuition; boarding schools (weekly maximums apply); and overnight camps (weekly maximums apply). 

You will need to file Form T778, Child Care Expenses, with your income tax return, and you must also obtain a receipt showing the information required by the form about the services provided. If the services were provided by an individual, you will need the individual’s social insurance number.

This credit is hard to miss — for 2012, it’s worth around $329 per child under 18 years of age at the end of 2012. 

A parent can claim this credit for one dependent child where there is no spouse (or you are not living with your spouse, do not support your spouse and are not supported by your spouse). The credit is worth $1,623 federally if the child earns no income, and is in addition to the child amount. There are many T’s to cross for this credit, so please refer to cra-arc.gc.ca for more details. All provinces and territories offer a similar credit.

Parents can take a 15% tax credit of a maximum of $11,440 in eligible adoption expenses per adopted child (a potential tax reduction of $1,716, which can be split between the parents). The credit is claimed in the year in which the adoption period for the child ends, being the later of: a) when the adoption order is issued or recognized by a government of Canada; and b) when the child first begins to reside permanently with the parents.

Eligible adoption expenses include: fees paid to a licensed adoption agency; court costs and legal and administrative expenses related to the adoption order; reasonable and necessary travel and living expenses of the child and parents; document translation fees; mandatory fees paid to a foreign institution; mandatory expenses paid in respect of the immigration of the child; and any other reasonable expenses related to the adoption required by a provincial or territorial government or an adoption agency.

Hang on to your supporting documents!

Some of the expenses associated with fertility treatments may be "eligible medical expenses" for tax purposes. An eligible medical expense credit is available if such expenses incurred by you, your spouse and your children younger than 18 are greater than a minimum amount. This minimum amount is the lesser of a) 3% of your net income, and b) $2,109.
 
The tax credit is equal to 15% of the amount by which your expenses exceed that minimum. Speak with a tax accountant to determine which fertility treatment expenses are eligible — there are many complex rules associated with this credit. See also cra-arc.gc.ca. Your accountant can help you figure out which spouse should claim the credit. If filing a paper return, receipts must be attached. All provinces and territories offer a similar eligible medical expense tax credit. 

Click on for variations and what's new for 2012 for all provinces and territories.

For Alberta, the adoption expenses credit flows from the federal version, and provides a tax benefit of up to $1,182 (10% credit rate applied to a maximum of $11,820 in expenses).

Adoption expenses credit: This credit is the same as the federal credit, with a maximum value of $579.

New for 2012:
Children’s fitness amount: same as the federal credit, with a maximum value of $25 per child.
Children’s arts amount: same as the federal credit, with a maximum value of $25 per child.

 
 

Children’s arts amount: The credit follows the provisions of the federal version, and provides a maximum benefit of $54 per child.

Fitness tax amount for people under the age of 25 at the end of 2012: The provisions are basically the same as the federal version, but with a maximum benefit per person of $54, available for young adults as well as children. The credit can be claimed by the child or young adult, the spouse of the young adult (if the young adult is between ages 18 and 24) or a parent.

Adoption expenses credit: This credit follows the federal rules, and provides a potential tax reduction of $1,080 (10.8% credit rate applied to maximum expenses of $10,000).

Fertility treatment tax credit: This credit applies to eligible medical expenses for fertility treatment incurred by you and your spouse in 2012. These expenses must be paid to a fertility clinic or licensed physician in Manitoba. (Reversals of vasectomies and tubal ligations do not qualify.) The credit is equal to the lesser of $8,000 or 40% of these expenses. If filing a paper return, receipts must be attached.

Childcare: Tax credit available for 7.7% of child care expenses deducted under your federal tax return.

Adoption expenses credit: This credit is similar to the federal credit, with a maximum tax benefit of approximately $856 (7.7% credit rate applied to maximum expenses of $11,116).

Sport and recreational expense tax credit for programs registered with the Nova Scotia Department of Health Promotion and Protection: The credit is 8.79% of amounts paid up to $500 per child (maximum value of around $44 per child), and the child must be less than 18 years old at the end of 2012. Keep your receipts.

Child tax credit: This credit is calculated as 8.79% x $100 for every month during which the child was under the age of six. The lower-net-income spouse is required to take the credit. (Form NS428 must be filed.)

Child tax credit is worth $48, available when the child is under the age of 6 at any time in 2012. (Form NU428 must be filed.)

Photo by Philip Squires via Flickr

Children’s activity tax credit: This credit is generally applicable to programs falling within the federal fitness or arts credit, for children under the age of 17. The credit is 10% of a maximum of $526 in program expenses (a potential benefit of around $53 per child). This credit is refundable — if there is no tax against which the credit can be applied, the government will pay the credit directly to the parents.

Adoption expenses credit: While based on the federal rules, this credit must be claimed in the year the adoption is finalized or recognized under Ontario law. The maximum benefit is around $579 (5.05% credit rate applied to expenses of $11,474).

Child tax credit is 9.8% x $100 for every month during which the child is under the age of six. The lower-net-income spouse is required to take the credit. (Form PE428 must be filed.)

Refundable tax credit for child care expenses: In some cases, parents can receive payment of the credit in advance. The credit rate varies between 26% and 75% depending on family income; the maximum expense to which the credit can be applied is $9,000 for children six and under, and $4,000 for children seven to 16 (file Schedule C). 

Refundable tax credit for fertility treatment expenses: This credit is equal to 50% of all eligible expenses up to $20,000 (maximum tax reduction of $10,000). Form TP-1029.8.66.2-V must be attached to the tax return. This credit has many requirements; see revenuquebec.ca.

Refundable tax credit for adoption expenses: This benefit is calculated as 50% of total eligible expenses up to $20,000 (maximum tax credit of $10,000). The credit is claimed in the year in which one of three documents is obtained: a) adoption judgment rendered by a court having jurisdiction in Québec, establishing a bond of filiation; b) adoption judgment rendered outside of Québec that has received legal recognition in Québec; or c) certificate of compliance issued in accordance with the “Convention on Protection of Children and Co-operation in Respect of Intercountry Adoption” (the Québec government must be properly notified of this certificate). Form PQ TP-1029.8.63-V must be attached to the tax return. The list of eligible adoption expenses is similar but not identical to the federal version. See revenuquebec.ca.

Active families benefit: for cultural, recreational and sports activities, and for children between the ages of six and 18 at the end of 2012. The maximum benefit per child is $150, which may be refunded to you if no tax is owing (attach Form SK479). Keep your receipts.
 
Child tax credit: for children under the age of 19, with a value of around $624 per child (Form SK428).
 

Children’s fitness amount: based on the federal version, with a maximum value of about $35 per child.

Child tax credit: for children under the age of 18, worth $154 per child. 

Public transit pass tax credit: calculated as 7.04% of eligible expenditures.
 
Adoption expenses credit: This credit is the same as the federal version, but with a maximum value of around $805.

New for 2012:
Children’s arts amount: This credit is the same as the federal credit, with a maximum value of about $35 per child.

If you have children who attended a post-secondary institution in 2012, don’t forget to have them file their tax returns — it’s possible that some or all of their tuition, education and textbook tax credits may be transferred to you. (They will need form T2202A from their school.) There is also a tax credit for Quebec parents for each term started in 2012 by a child pursuing vocational training or post-secondary studies (the maximum value of the credit is $806 if the child earns no income — file Schedule A, and make sure you have slip RL-8).  

Many of the tax credits discussed above are calculated differently (i.e., more generously) for parents of a child with special needs. If this is your situation, look for an accountant with experience in disability tax planning.

Don't stress! Save money this tax season with these (sometimes unexpected) benefits for families across Canada.