Claiming child care expenses
One such tax break could come from claiming child care expenses. “This benefit is very significant for them, if they’re trying to deal with the costs of daycare and camp and everything,” said Sean Grant-Young, national director of tax for Baker Tilly Canada. The deduction allows parents to claim expenses on daycare, nannies, day camps and other child care services that are necessary for both spouses to work or run their business, he said. It can’t be claimed for specialized lessons, such as hockey camps.
Chartered professional accountant Stefanie Ricchio said the real caveat for an activity to qualify as a child care expense is that a child attends a program so the parents can go to their jobs and earn. For example, sending your kids to a summer camp program so they’re being watched while you’re at work is an expense that can be claimed on your taxes, she said.
The deduction amount can be as much as $8,000 a year for children under the age of seven. After that, it reduces to about $5,000 a year up until the age of 16. In most cases, Ricchio said the parent with a lower net income must apply for childcare claims.
Government benefits tied to your tax return
The Canada Child Benefit is the “cornerstone” of the way the government supports families with monthly payments, which is also income-tested and depends on taxes, said Grant-Young. “It’s important to ensure that you’re filing the returns, even if there’s no income,” he said.
The Canada Revenue Agency says parents who don’t file their taxes on time are at risk of losing CCB payments. For late filers, benefits may be temporarily suspended.
In January, the federal government announced an expansion of its existing GST credit program, boosting the rebate by 25% for the next five years. The program applies to families with low and modest incomes to help offset the GST/HST that they pay.
When parents have split up, or a child is raised in a blended family, tax refunds and credits can get a bit more complicated depending on who is claiming the expenses, and it may be better to consult an accountant, experts say.
Other tax credits families shouldn’t overlook
There are also some smaller tax benefits parents can claim.
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Families can claim eligible medical expenses for their dependants and receive a 15% non-refundable tax credit. But the medical bills have to exceed an income or expense threshold. Taxpayers have to meet the lower amount of either exceeding $2,800 in medical expenses or spending 3% of their net income on health care, Grant-Young said.
For example, if someone makes $40,000 in net income, they would have to spend at least $1,200 on out-of-pocket medical expenses—prescriptions, dental care—before the credit kicks in.
Income Tax Guide for Canadians
Deadlines, tax tips and more
Some provinces also offer additional credits for fitness or other extracurricular activities, and it’s important to keep those receipts safe for the tax season.
For adult children in post-secondary education, families can decide whether the tuition tax credits get used the same year, are carried forward to the following years when the child finds a higher-paying job, or get transferred to the parents. “A lot of parents are very much of the opinion that if I paid for your school, I am claiming your tuition tax credits,” said Ricchio. She added the annual maximum amount transferred to a parent, a grandparent, or an eligible guardian is $5,000.
Finally, not everyone realizes that Registered Education Savings Plans are not tax-deductible, said Ricchio. “RESPs work differently from RRSPs,” she said, referring to the registered retirement savings plan. “When you contribute to an RRSP, you get the deduction from your taxable income. But the RESP doesn’t work that way.”
However, RESP contributions offer tax-deferred growth and government matching grants to help increase the savings without affecting the contribution room.
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