Children and taxes: What to expect when you’re expecting.
June 23, 2022
Babies change everything, including your taxes! But don’t let that scare you. The Canada Revenue Agency (CRA) and Revenu Québec have maternity and paternal leave benefits, credits, and more to give those caring for newborns some additional support.
Here’s some important information every new parent should know. Jump to each section to learn more:
- Automated Benefits Application
- Canada Child Benefit (CCB)
- Maternity and parental leave benefits
- Child care support
- Additional benefits for new parents
Automated Benefits Application.
This is an easy way for new parents to apply for both federal and provincial/territory child benefit programs. After you register the birth of your child, you can consent to Automated Benefits Application. Some provinces or territories don’t have the automatic benefits application, but if you live in a participating province, this automatically signs your child up for the Canada Child Benefit (CCB) and the GST/HST credit (more on that below), as well as any related provincial or territorial programs.
Participating provinces include:
- British Columbia
- Northwest Territories
- New Brunswick
- Nova Scotia
- Newfoundland and Labrador
- Prince Edward Island
If you don’t give your consent or if your hospital doesn’t offer this, the information on the birth registration form will not be sent to the CRA. This means you’ll have to apply for child and family benefits through your CRA My Account, or by completing form RC66: Canada child benefits application. Don’t wait too long to apply for benefits for your child, as the CCB for example is paid monthly, and you’ll want to start collecting those benefits as soon as possible.
And remember, all provinces have some additional benefits for children (typically based on family income), so be sure to look into what is available to you where you live.
Canada Child Benefit (CCB).
New parents might qualify for the Canada Child Benefit, a tax-free monthly payment for eligible families. The CCB is designed to help with the cost of raising children up to the age of 18. This monthly payment is based on your net family income, how many children you have, and their ages.
Curious to know more about the CCB? Check out our blog on the CCB for full details including eligibility, payments, and more.
Maternity and parental leave benefits.
To help new parents, the government offers parental leave benefits to give those caring for their newborn some additional support.
Who’s eligible for parental leave benefits?
Parents who are on parental leave are eligible for benefits in the form of monthly payments that help support them while absent from work.
To be eligible for Employment Insurance (EI) maternity and parental benefits, the applicant must meet the following criteria:
- They’re pregnant or recently gave birth when requesting maternity benefits, or they’re a parent caring for a newborn or newly adopted child.
- Their regular weekly earnings have decreased by more than 40% for at least one week.
- They’ve worked for at least 600 hours in the 52 weeks (1 year) before or since the start of their current claim, or since the start of their last claim, whichever is shorter.
There are two kinds of payment periods people can take. They can either take the standard payment period of 52 weeks at 55% of their average insurable weekly earnings up to a maximum of $638 in 2022. Conversely, they could take the extended payment period of 78 weeks at a rate of 33% of their average insurable weekly earnings, up to a maximum amount of $383 a week.
How will this affect my taxes?
The parental leave benefits you receive are considered taxable income. This means, among other things, you should work with your tax expert to determine how much you will owe for the amount paid out to you during parental leave and set it aside so you don’t have to worry about it come tax time.
Child care support.
Certain forms of child care, daycare, and related expenses can be claimed as a tax deduction. Yes, you read that right! To make things more confusing, these costs can be deducted against your Employment Insurance (EI) for the purpose of child care expenses for 2020 and 2021, but no other years. That’s because COVID-19 benefits fell within the definition of “earned income” so in the name of fairness, the government couldn’t exclude other EI benefits. From 2022 onward, the costs cannot be deducted against your parental leave income.
Some examples of childcare expenses you might be able to claim are:
- Caregivers (for example, babysitters, nannies, etc.) providing childcare services
- Day nursery schools and daycare centres
- Childcare services provided by educational institutions (but remember, only your fees related to childcare can be claimed)
- Day camps and day sports schools where the primary goal of the camp is to care for children (an institution offering a sports study program is not a sports school)
- Boarding schools (excluding the amount relating to education), overnight sports schools, or camps where accommodation is involved
For more information, check out our blog on 6 things you should know about childcare expenses.
Additional benefits for new parents.
The government has additional benefits for new parents. The best part? You don’t need to apply for them. The following programs will be paid automatically when you register your child’s birth. Keep in mind, you’ll need to file your return every year to start or continue receiving these benefits.
Provincial or territorial programs
Most provinces and territories have child and family benefit and credit programs that combine with the CCB and the GST/HST credit. You can check to see if your province or territory has an additional credits on the CRA website.
Low-income families can benefit from this tax-free quarterly payment designed to offset some of the GST or HST they’ve paid throughout the year, and they can collect this payment on behalf of their child up to 18 years old. To receive the GST/HST credit, you’ll need to file your income tax return every year – even if you don’t have any income to report.
For more details on the GST/HST credit, including how the amount is calculated, visit the H&R Block Online Help Centre.
Additional help for families with disabilities
If you or your child has a disability, you might have additional expenses that others don’t. To offset these costs, families with disabilities can claim some additional tax credits and deductions.
For example, if you or your dependant has a long-term disability, you might be eligible for the federal disability tax credit (DTC) to help lower the taxes you owe. Keep in mind, you’ll need a signed T2201 certificate on file with the CRA to be eligible for this credit.
Additionally, the child disability credit (CDB) is a tax-free benefit for families who care for a child under the age of 18 who’s eligible for the disability tax credit. In order to be eligible for the CDB, you must also be eligible for the Canada Child Benefit and the disability tax credit. If you’re already receiving the CCB and your child is eligible for the DTC, you don’t need to apply for the CDB – you’ll receive this credit automatically.
Having a child changes a lot of things, and it can seem overwhelming at some points. Get help from the largest network of reliable Tax Experts at H&R Block by choosing one of four convenient ways to file: File in an Office, Drop-off at an Office, Remote Tax Expert, or Do It Yourself Tax Software.