It’s that time of year again — your mailbox is full of many perforated 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.
FEDERAL TAX CREDITS
Children’s Arts Credit
This credit, new for 2011, 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 minor must have been younger than 16 at the beginning of 2011. Permitted programs must focus on artistic, cultural, recreational or developmental activity, such as:
- literary arts
- visual arts
- performing arts
- wilderness and the natural environment
- interpersonal skills training or
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, discussed below. (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.
Children’s Fitness Credit
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 cardiorespiratory endurance and also focus on one or more of muscular strength, muscular endurance, balance or flexibility. Obtain a receipt for your file.
Public Transit Tax Credit
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 lots of requirements to using this credit – see this Canada Revenue Agency page for more details. Make sure you keep your receipts and passes!
Child Care Expense Deduction
Repeat after me: we love deductions! Credits are wonderful, but the tax reduction for credits is calculated using the lowest tax rate, whereas the benefit of a deduction increases along with your tax rate.
This particular deduction must be taken by the spouse with the lower income (which includes having zero income), 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 6 years old or younger, and maxes out at $4,000 for each child between 7 and 16 years.
Don’t forget that this deduction encompasses more than just daycare and nanny expenses. Also included are amounts paid for:
- day camps
- the child care component of private school tuition
- boarding schools (weekly maximums apply) and
- overnight camps (weekly maximums apply)
Don’t forget 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.
Child Tax Credit
This credit is hard to miss – for 2011 it’s worth around $320 per child under 18 years of age at the end of 2011.
Read on for more ways to save money, tips for adoptive parents and those who’ve undergone fertility treatments>
Eligible Dependent Credit
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 $1,579 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 the information on this Canada Revenue Agency page for more details. All provinces and territories offer a similar credit.
Adoption Expenses Credit
Parents can take a 15% tax credit of a maximum of $11,128 in eligible adoption expenses per adopted child (a potential tax reduction of $1,669, which can be split between the parents). The credit can be claimed for 2011 as long as the adoption period for that child ended during 2011. The adoption period ends when the adoption order is issued or recognized by a government of Canada, as long as the child is residing permanently with the adoptive parents at that time.
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 onto 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:
- 3% of your net income; and
The tax credit is equal to 15% of the amount by which your expenses exceed that minimum. It is advisable to speak with a tax accountant to determine which fertility treatment expenses are eligible, as there are many complex rules associated with this credit. See this Canada Revenue Agency page for more detail. Your accountant can also 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.
Newfoundland and Labrador
- 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 $830 (7.7% credit rate applied to maximum expenses of $10,782).
Prince Edward Island
- Child tax credit is 9.8% x $100 for every month during which the child is under the age of 6. The lower net income spouse is required to take the credit. (Form PE428 must be filed).
- 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 2011. Keep your receipts.
- Child tax credit calculated as 8.79% x $100 for every month during which the child was under the age of 6. The lower net income spouse is required to take the credit. (Form NS428 must be filed).
- Refundable tax credit for child care expenses. Parents can, in some circumstances, receive payment of the credit in advance. The credit rate varies between 26% and 75% depending on family income, and the maximum expense to which the credit can be applied is $9,000 for children 6 and under, and $4,000 for children from 7 to 16 years of age (file Schedule C).
- Refundable tax credit for adoption expenses. This benefit is calculated as 50% of total eligible expenses up to $20,000 (a maximum tax credit of $10,000). The credit is claimed in the year in which one of three documents is obtained:
- an adoption judgment rendered by a court having jurisdiction in Québec, establishing a bond of filiation;
- an adoption judgment rendered outside of Québec that has received legal recognition in Québec; or
- a 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, along with a copy of one of the documents listed above. The list of eligible adoption expenses is similar but not identical to the federal version — for more detail, refer to this Revenu Québec page (PDF).
- Refundable tax credit for fertility treatment expenses. This credit is equal to 50% of all eligible expenses up to $20,000 (a maximum tax reduction of $10,000). Form TP-1029.8.66.2-V must be completed and attached to the tax return, along with supporting documents. This credit has many requirements — for more detail see this Revenu Québec page (PDF).
- Children’s activity tax credit, 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 $509 in program expenses (a potential benefit of around $51 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. This credit, while based on the federal rules, must be claimed in the year the adoption is finalized or recognized under Ontario law. The maximum benefit is around $561(5.05% credit rate applied to expenses of $11,107).
- Arts tax credit for children. The credit follows the provisions of the federal version, and provides a maximum benefit of $54 per child.
- Fitness tax credit for people under the age of 25 at the end of 2011. 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 18 and 24 years of age) 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 after September 30, 2010 and paid in 2011. 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.
- Active families benefit for cultural, recreational and sports activities, for children between the ages of 6 and 15 at the end of 2011. The maximum benefit per child is $150 and is refundable if no tax is owing (attach Form SK479). Receipts required.
- Child tax credit for children under the age of 19, with a value of around $607 per child.
- Adoption expenses credit. This credit flows from the federal version, and provides a tax benefit of up to $1,161 (10% credit rate applied to a maximum of $11,611 in expenses).
- Adoption expenses credit. This credit is the same as the federal credit, with a maximum value of $563.
- Child tax credit is worth $48, available when the child is under the age of 6 at any time in 2011. (Form NU428 must be filed).
- Children’s fitness credit, 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 $158 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 $783.
Other credits and deductions
If you have children who attended a post-secondary institution in 2011, 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 2011 by a child pursuing vocational training at the secondary school level (the maximum value of the credit is $393 per term if the child earns no income – file Schedule A, and make sure you have slip RL-8).
Note for parents of children with special needs
Many of the tax credits discussed above are calculated differently (i.e. more generously) for parents of a child with a disability or infirmity. If this is your situation, look for an accountant with experience in disability tax planning.