When you’re raising children, the expenses can seem endless. There’s day care, after-school programs, music lessons, sports teams – the list goes on.
So at tax time, it’s important to make sure you’re claiming all the child-related credits you can – no matter how small each one may seem – in order to make the most of your tax return.
"As a mom, I think every little bit helps," says Cathy Richardson, a mother of two, aged six and seven, in Bracebridge, Ont. Here are a few key tax credits, deductions, benefits and general tips that parents should know about when filing their returns this year.
Child Tax Credit
Every year, families can claim a certain amount for each child under 18. This year, that number is $2,131, which works out to a savings of around $320 per child. Either parent can claim it.
"It should be the parent who would get the most benefit from it," says Cleo Hamel, senior tax analyst for H&R Block in Calgary.
"Traditionally, moms will claim it. However, there’s nothing that says they have to."
Cathy Richardson, who does her husband’s taxes as well as her own, says that most online tax programs have the ability to tell you which parent will get the most bang for their buck by claiming a certain credit. If there are no stipulations about which spouse can claim a particular credit, she always uses UFile to see where they’ll get the most overall benefit.
Children’s Fitness Credit
Since 2007, parents have been able to claim up to $500 annually in sports and fitness activity fees per child under the age of 16, resulting in a maximum savings of $75 per child. Hamel points out that there are some restrictions on this: the program must be at least eight weeks long and must occur on a weekly basis; if it’s a sports- or fitness-related day camp, it must be run for five consecutive days.
Either parent can claim this, or it can be split between them. In the case of a divorced couple with shared custody, however, it’s important to note that only $500 in total can be claimed per child, even if each parent individually spent more than $500 per kid on sports activities. Also, parents of children with disabilities are eligible to claim an additional $500 (totalling $1,000) for each child who has a disability, and for these children the age limit is raised to 18.
It’s a good idea to keep the receipts of all of your kids’ activities throughout the year – it is possible to chase them down later, but it’s always easier to ask for receipts as you go along and keep them all in one place.
Richardson shares a helpful hint for making sure you don’t forget any of your kids’ activities.
"I try to keep my receipts, but I also keep a family calendar of all our activities: when the kids have swimming, or soccer or whatnot," she says, explaining that with an active family, last winter’s activities can easily slip your mind.
"I have everything jotted down on the calendar and can reference it when I’m doing my taxes."
Children’s Arts Credit
This year, parents are eligible to claim a new credit on their taxes for all of their children’s arts-related activities in 2011. Similar to the fitness credit, you can claim up to $500 per child, which can result in a maximum $75 savings. The general requirements are the same as for the fitness credit in terms of age, program length and increases for children with disabilities.
This credit has a fairly broad reach when it comes to what qualifies. It not only covers things you would typically think of as "arts," such as drama, painting or music classes; it also includes services like academic tutoring and community programs like Scouts or Girl Guides.
Kirsten Travis Loop, mother of a three-and-a-half-year-old boy in Waterloo, Ont., is pleased that the government is acknowledging the importance of the arts with a tax credit.
"It's about time we start supporting creativity and sending the message that it's important," she says.
Child Care Deduction
Working parents who use child care know the important this one is.
"Child care is an actual deduction against taxable income [rather than just a tax credit]
," explains Hamel. "So if you claim child care, you’re reducing the number of dollars that you’re being taxed on."
Savings can be "sizeable," says Hamel, who explains, "For every $1,000 of child care you claim, you’re going to save $150."
That said, there is a maximum amount you can claim – $7,000 for each child under seven and $4,000 for each child over that age – which often doesn’t come anywhere close to covering the actual amount a Canadian parent pays for daycare. "I find this limit is way too low," admits Richardson. Also, this deduction can only be claimed by the parent with the lower income.
To qualify for this deduction, you need a tax receipt from your day care provider. This shouldn’t be a problem with a formal day care centre or licensed home day care, but it can get complicated if you’re using an unlicensed babysitter. If the child care provider doesn’t want to report this income to the government, she may refuse to issue that official receipt, which means you can’t claim any child care.
This is something that should be discussed well before you enter into a regular child care arrangement with an unlicensed sitter. "When you are out looking for a child care provider, make sure they understand what you’re going to be expecting from them," says Hamel.
Summer camps are also considered child care. That said, if you’ve reached your annual limit for child care but still have room in your sports or arts credit limit, you can apply camps to the fitness or arts credit as long as they fit the criteria (a basketball camp that primarily focuses on basketball, for instance, or a drama camp where the main activity is drama).
Universal Child Care Benefit and Canada Child Tax Benefit
All families, regardless of income, are eligible to receive $100 each month per child under six years of age through the Universal Child Care Benefit program. Tax must be paid on this at the end of the year (which many Canadian parents aren’t too happy about), and the parent with the lower income must claim it as income on their taxes.
As for the Canada Child Tax Benefit, eligibility for this monthly cheque is worked out according to a family’s total income, province of residence and number of children. This means the monthly amount received by different families will vary significantly, while some families won’t be eligible for this benefit at all.
For those who receive it, the good news is that it’s non-taxable. Hamel warns, however, that if you’re late in filing your taxes, payment of this benefit may be temporarily put on hold since the amount you receive is calculated based on income reported on your annual tax returns.
For single parents, filing taxes can be tricky, especially when parents are divorced but still actively involved in raising their kids.
"As the parent who has primary custody of the child, you are the one who gets to claim the child amount, the tax benefit amount and the universal childcare benefit," says Hamel.
But in cases where there’s not one clear primary guardian – when custody is shared 50/50, for instance – it can get much more complicated, and you might want to consult with an accountant to work out the more murky questions of who can claim what.
Interestingly, single parents are allowed to claim one child as an "eligible dependant" (sometimes referred to as an equivalent-to-spouse credit), which amounts to a claim of $10,527. If there is more than one child and the parents have joint custody, then each parent can claim the equivalent-to-spouse amount for one child. If one parent pays child support, however, he or she can’t claim this credit.
Children with Disabilities
In addition to being eligible to claim an additional $500 for both the fitness and arts credits, parents of children who are under 18 and have disabilities are also eligible for the tax-free monthly Child Disability Benefit, and can claim a disability credit on their taxes as well.
To qualify for any of these, however, you need to get a doctor to fill out a disability tax credit certificate, which must then be approved by the Canada Revenue Agency.