Family Finances
Starting a family is largely considered to be one of the most exciting and rewarding undertakings in life. But it's also one of the most financially challenging, and it usually requires a great deal of careful budget planning. That's why it's good to know that bringing a child into the world may also bring you some significant tax breaks.
Canada Child Tax Benefit
The Canada Child Tax Benefit (CCTB) is a tax-free monthly payment designed to assist families with the cost of raising children. Families in British Columbia, New Brunswick, Newfoundland, the Northwest Territories, Nova Scotia, Nunavut, Saskatchewan and the Yukon may also receive a provincial or territorial child benefit payment with their monthly CCTB cheque, depending on their income level. Alberta and Ontario have supplemental programs for working families with children, which are administered independently of the CCTB program.
How much you receive in CCTB payments depends on the number of children you have. For payments beginning in July 2010, you will receive an annual CCTB base benefit of $1,340 for your first child. The total is reduced by 2% of family net income in excess of $40,726. The rate of the reduction is 4% for families with two children or more.
The CCTB is paid monthly. However, if your maximum annual entitlement is less than $120, you will receive one lump-sum payment in July.
You should apply for the CCTB as soon as possible after your child is born, using Form RC66 - Canada Child Tax Benefit Application. Once you have made the original application, both you and your spouse must file an income tax return each year in order to continue receiving benefits.Universal Child Care Benefit
The Universal Child Care Benefit provides a monthly payment of $100 per month for each child under the age of six.
These payments will be taxable in the hands of the lower-income spouse or common-law partner. However, they will not be taken into account in determining eligibility for income-dependent programs delivered through the tax system and will not be included in the net income threshold for GST, CTB (Child Tax Benefits) or EI benefits.
With the introduction of the UCCB benefit, the Child Tax Benefit Supplement for children under the age of seven was eliminated effective July 1, 2006.
To register for the UCCB, complete form RC66 (Canada Child Tax Benefit application). This form is available from the CRA. Click here to access the form.Child Disability Benefit
Effective for the payment period beginning July 2009, the Child Disability Benefit component of the Canada Child Tax Benefit will be increased from $2,395 to $2,455 per child. The percentage at which the benefit is phased out when family net income exceeds $40,726 will also be reduced to 2% for families with one disabled child and 4% for families with more than one disabled child.
Children's Fitness Tax Credit
Many parents may not be aware they can claim the Children's Fitness Credit that started with the 2007 return. The credit is meant to help children get active and stay fit. However, there are some guidelines for claiming the credit:
- The maximum credit is $500 to cover registration costs for each child under the age of 16 at the beginning of the year in which an eligible fitness expense was paid.
- An eligible program is defined as "an ongoing, supervised program, suitable for children, in which substantially all of the activities undertaken include a significant amount of physical activity that contribute to cardio-respiratory endurance, plus one or more of muscular strength, muscular endurance, flexibility and balance."
- Eligible programs would typically include sports such as hockey, soccer, karate, football, basketball, swimming, hiking, horseback riding and sailing.
- Activities that involve motorized vehicles as a central component are not eligible.
- The program must last at least eight weeks at a minimum of one session per week. For children under the age of 10, the session needs to last at least 30 minutes. For children 10-16, the activity must last an hour.
- Your receipt needs to indicate the organization's name and address, the eligible activity, child's name and child's year of birth, and the amount you paid for the program. The organization responsible for the activity should issue you a receipt for tax purposes.
- The portion of a family membership covering a child's participation in an eligible program will be eligible as well as extracurricular programs that take place at a school.
- Children with disabilities are eligible for an additional $500 credit up to the age of 18, provided that a minimum of $100 is paid for an eligible fitness program. The additional credit takes into account the extra costs that children with disabilities encounter when they become involved in programs of physical activity, notably with regard to specialized equipment, transportation and attendant care.
Tax Credit for Transit Passes
Transit includes travel by local bus, streetcar, subway, commuter train, commuter bus and local ferry. You can claim the cost of monthly transit passes or passes of longer duration.
You can also claim the cost of shorter duration transit passes if each pass allowed you unlimited travel for at least 5 consecutive days and you purchased enough of these passes to cover 20 days in any 28-day period.
The cost of electronic payment cards can be claimed when they are used to make at least 32 one-way trips during a period not exceeding 31 days.
The credit may be claimed by either the taxpayer or the taxpayer's spouse or common-law partner for transit costs incurred by themselves and their dependent children under the age of 19.
Make sure you keep your passes or receipts so that you can substantiate the amount you spent.
Non-Refundable Tax Credits
You can claim $2,089 for each of your or your spouse’s or common-law partner’s children who are under the age of 18 at the end of the year.
If you are a single parent, you may be able to claim the amount for an eligible dependant for one of your children under the age of 18. In order for you to claim the amount for an eligible dependant, the child must have lived with you for at least part of the year in a self-contained domestic establishment that you maintained. It is not necessary that you maintained the establishment by yourself - you may have maintained it jointly with other people. However, only one person in the establishment may claim the amount, regardless of how many of them have dependants that would otherwise be eligible for the claim.
You cannot claim both the spouse or common-law partner amount and the amount for an eligible dependant in the same year (which would otherwise be possible if you were single and supporting a child for the first part of the year and then subsequently married or started living in a common-law relationship). Only one person may claim the amount for an eligible dependant for a particular child.
If your child is disabled, you may claim the unused portion of his or her disability amount of $7,196. Do not forget that there is a disability supplement of $4,198 for children under the age of 18.If your disabled or infirm child is 18 or older, you may claim a caregiver amount for him or her of up to $4,198, depending on your child’s net income.
Child Care Expenses
If you send your child to day care or hire a babysitter in order to go to work or school, you will probably be able claim child care expenses. If you are married or living in a common-law relationship, the spouse with the lower net income must make the claim. However, there are exceptions to this rule if you incurred child care expenses during a period when your spouse was infirm, incarcerated or going to school, or during a period when you were separated for at least 90 days.
The maximum dollar amount you may claim for a child under the age of 7 is $7,000. This is reduced to $4,000 for children between the ages of 7 and 16. The maximum amount you may claim for a disabled child is $10,000, regardless of age.
As a general rule, you may not claim expenses in excess of two-thirds of your earned income (which includes your income from employment, self-employment, scholarships, research grants, and Canada or Quebec Pension Plan disability benefits). However, if you are a single person attending school, or both you and your spouse are attending school at the same time, you are limited to two-thirds of your net income, as opposed to your earned income.
You may not claim any child care expenses that you paid to the child's mother or father or to someone under the age of 18 who is related to you. If you are claiming a personal amount for a dependant (such as the caregiver amount for a parent who is living with you), you may also not claim child care expenses you paid to that person.Tuition Fees
You cannot claim tuition fees you paid for your child's private schooling or for recreational activities such as ballet or tennis lessons. However, fees paid to a day nursery, boarding school, or camp may qualify as child care expenses if you incurred them while you were working or going to school.
Once your child reaches the age of 16, he or she may claim tuition fees paid for a course that develops or improves skills in an occupation. Your child may also claim tuition fees for courses at the post-secondary level at any age. If your child cannot fully utilize the tuition fees on his or her tax return, he or she may either carry the unused portion to future years, or transfer it to you.Registered Education Savings Plans (RESPs)
If you want to put aside money for your child's post-secondary education, consider the possibility of a RESP. Although your contributions are not deductible, the income earned by the plan is not taxed until it is withdrawn. Assuming your child pursues a post-secondary education, it will then be taxed in his or her hands instead of yours - and therefore at a lower marginal rate.
The government will also match your contribution with a 20% Canada Education Savings Grant (CESG) to a maximum of $500 per child per year up to a lifetime limit of $7,200. The matching will be boosted to $200 on the first $500 for families with income less than $37,885, and to $150 for families with income between $37,885 and $75,769.
GST/HST Credit
The base amount of your GST/HST credit is increased by $130 for each of your children. If you are single and claiming an amount for an eligible dependant for a child, the base amount is increased to $248 for that child. However, the base amount continues to be reduced by 5% of your family net income in excess of $32,312.
Provincial tax credits and tax reductions may also be increased in some provinces if you have children.
