Tax time 2015: tax benefits for parents can add up to big savings
From family tax cuts to learning bonds, children entitle you to a bevy of benefits and deductions
The Harper government's new family tax cut credit, which takes effect in the 2014 tax year, may be getting all the attention this tax season, but there are many other deductions and benefits to take advantage of if you have children.
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Ottawa paid out $13.1 billion in child tax benefits and universal child care benefits in the 2013-2014 fiscal year. To ensure you're getting your share of those advantages, review our checklist of the things you should be doing when it comes to your kids and taxes.
1. Claim birth-related medical costs
Claim on your return such expenses as a nurse's pre-natal care or other costs not covered by medicare.
2. Apply for Canada child benefits
In most provinces and territories, you can apply for child benefits (see below) at the same time as you register a birth — if you are the birth mother and a resident of one of those provinces or territories. The information will be sent electronically to the Canada Revenue Agency.
3. Use the family tax cut credit
In late October 2014, the Harper government announced a family tax cut credit that would allow eligible parents with at least one child under the age of 18 to effectively shift up to $50,000 of taxable income from the higher-earning spouse or common-law partner to the lower-earning one. The maximum credit is $2,000, and it's in effect for the 2014 tax year.
4. Apply for a social insurance number for your child
New parents need a SIN for their offspring to take advantage of benefits and programs to encourage education savings, including:
- A registered education savings plan (RESP): Parents, other family members and friends can contribute to an RESP as a way of saving funds for a child's post-secondary education. You don't get a tax deduction on the contribution, but the income earned once the money is inside the RESP is not taxed until it is paid out to the beneficiary, who is the one to pay the tax. The federal government also contributes to an RESP in the form of grants. Having an RESP can qualify you for:
- The Canada Learning Bond: For children born after 2003 whose family is receiving the national child benefit supplement, the federal government will contribute $500 to an RESP to help cover the costs of a post-secondary education. There is no requirement for any contribution from the parents. Ottawa will continue to contribute $100 for each year that the family qualifies for the supplement up to age 15 and to a total maximum of $2,000.
- The Canada Education Savings Grant: The federal government kicks in 20 cents for every $1 of the first $2,500 saved in an RESP each year. Depending on the family income, the government might also provide an extra 10 or 20 cents on every $1 of the first $500 saved annually in an RESP. The grant has a maximum lifetime limit of $7,200 and is paid out up until the end of the calendar year the child turns 17.
5. Claim all federal and provincial credits and deductions you can
- Child tax credit: In the 2014 tax year, the federal credit is $2,255 for each child under 18, which works out to tax savings of around $338 per child.
- Children's fitness credit: This credit doubles for the 2014 tax year. Claim up to $1,000 annually in sports and fitness activity fees per child under the age of 16, resulting in a maximum savings of $150 per child. The credit will be refundable as of the 2015 tax year, meaning that families with lower incomes will be able to fully benefit from it. The program must last at least eight weeks and be weekly; if it's a sports- or fitness-related day camp, it must run for at least five consecutive days.
- Children's arts tax credit: Claim up to $500 annually for children who were younger than 16 at the beginning of the year (or younger than 18 if disabled) and who took part in an eligible program of artistic, cultural, recreational or developmental activity. Besides traditional arts programs, this also includes such activities as academic tutoring, language lessons and Scout and Girl Guide programs.
- Child care deduction: This is a deduction (as opposed to a tax credit) so it lowers your taxable income. The parent with the lower income claims $7,000 for each child under seven, $4,000 for children age seven to 16, and $10,000 for children eligible for the disability tax credit. You must provide a receipt from the care provider. As of the 2015 tax year, all of these dollar limits increase by $1,000.
- Universal child care benefit: All families, regardless of income, are eligible to receive $100 each month per child under six. As of Jan. 1, 2015, UCCB payments to children under six will increase to $160 a month. There will also be a new benefit of $60 a month for children age six to 17, also effective Jan. 1, 2015. But the enhanced benefits won't be paid until July 2015, so parents will get a retroactive payment then. Because of the enhancements to the UCCB, the child tax credit will be eliminated as of the 2015 tax year. Note that the Canada child tax benefit (see below) has not changed. Apply using the Canada child benefits application.
- Canada child tax benefit: The eligibility and amount of this tax-free monthly benefit for each child under 18 is determined by family net income, province of residence and number of children. If you file late, payment may be temporarily put on hold as the amount is based on income reported on your annual tax returns. The child tax credit is indexed to inflation and new rates take effect July 1 of each year.
- National child benefit supplement: This is a federal supplement that tops up the Canada child tax benefit for low-income families with children under 18. Families get a monthly payment of $186.75 for the first child; $165.17 for the second child; and $157.16 for the third child. The supplement is reduced if the family's net income is more than $25,584 and could affect social assistance benefits since many provinces and territories treat it as income.
- Child disability benefit: This is a tax-free benefit for families who care for children under 18 with mental or physical disabilities. Check out the CRA calculator to see what benefits you're entitled to.
- Adoption expenses: A tax credit can be claimed for expenses related to the adoption of a child under the age of 18. For the 2014 tax year, the government increased the maximum amount of eligible expenses to $15,000 — up from $11,669 in 2013 — which would amount to a tax savings of $2,250.
- Transit pass cost: Public transit passes used by children who were younger than 19 at the end of the tax year can be claimed by either parent (including common-law partners).
- Tuition, education and textbook amounts: Students enrolled full time or part time at a university or college or other educational institution certified by the government and who pay more than $100 per institution in tuition fees can claim the total of their tuition fees. Full-time students can claim an additional $400 each month that they are enrolled full time, plus $65 a month for textbooks. Part-time students can claim an additional $120 each month and $20 a month for textbooks. If there are education-related amounts leftover after the student has claimed all he or she can on their own return, these can be transferred to a parent, grandparent, spouse or common law partner up to a maximum of $5,000. Unclaimed amounts carried forward from a previous year by the student cannot be transferred.
- Student loan interest: Claim the interest paid on your student loan in 2014 or the preceding five years for post-secondary education.
- Moving costs: Claim eligible moving expenses against scholarship or research grant income if you moved in order to attend a university, college or other post-secondary educational institution full time.
6. Ask your employer to deduct at source
Tell your employer to deduct any child amounts, tuition, education and textbook amounts and amounts for eligible dependants to lower the tax you pay on your paycheque, so you don't have to wait until your refund to get what's coming to you. A personal tax credits return shows you what's covered.
7. File a tax return for your child
Filing a return for children — even those who make just a few dollars babysitting — allows parents to claim deductions and credits on their behalf that may be carried forward indefinitely, providing tax savings in later years when those children's earnings are high and increasing available contribution room for RRSPs. Some provinces even provide cash refunds from the GST credit for children 16 and over. As well, filing may allow someone with more than one job over a year to recover employment insurance premiums or Canada Pension Plan overpayments.