Tax breaks for parents are all over the map, from benefits, deductions and credits. Before tax season begins, review all the entitlements to lower your family tax bill.
This year, many tax changes were announced and they directly affect parents. The biggest new initiative, though it won't affect most families, is what the federal government has billed as the "family tax cut." Its beneficiaries will be families with one parent having a much higher income than the other parent. Accomplished via tax credits, the targeted tax break starts this month, effective for the 2014 tax year.
A higher-earning spouse can transfer up to $50,000 to a lower-earning spouse or common-law partner, provided they have a child under the age of majority.
Separated or divorced parents may take advantage of this tax break with their new spouse or common-law partner. Unfortunately, single parents don't qualify for this benefit, says tax expert Evelyn Jacks, president of the Knowledge Bureau.
Shifting money to a lower-earning spouse, which is in effect a new income-splitting technique, is appealing because it will ultimately reduce the amount of tax payable by the family. But there is a catch. The federal government has capped the maximum non-refundable tax credit at $2,000 in response to criticism that this initiative mainly benefits the affluent.
Calculating how much income to transfer between spouses is not onerous. "The tax returns don't actually change. It's just the calculation that will be filled out on a separate form called Schedule 1A,"notes Jamie Golombek, managing director of tax and estate planning at CIBC.
Either parent can claim the tax credit but not both, adds Jacks. To figure out how the credits work, check out this income estimator .
In another perk for parents, the universal child-care benefit has been revamped. Effective Jan. 1, parents will receive $160 a month for every child under age six. That's up from $100 last year. Also starting in 2015, families with older children (ages seven to 17) will start receiving benefits of $60 a month per child.
The first payments for the enhanced benefits will be made in July. At that time parents will receive the first seven of the monthly increases in payments, totalling $420.
Remember, the universal child-care benefits are taxable and must be claimed on line 117 of the tax return.
Extra money coming into the family coffers can be used to a parent's advantage. Golombek recommends topping up registered education savings plans if parents were not able to do so previously. With RESPs, the Canada education savings grant pays 20% on your contributions to a maximum of $500 -- more free money.
The newfound cash is also a great way to reduce debt and pay down the mortgage. "After all," says Golombek, "the government doesn't dictate how you spend the money and it is not an income-tested benefit."
To provide the money for the expanded universal child-care benefit, the federal government plans to eliminate the child tax credit in the 2015 tax year (line 367 on schedule 1 of the income-tax form). For 2014, the amount to claim will be $2,255, which works out to a value of $355 per child.
Child-care deduction amounts (line 214) are set to increase in the 2015 tax year. This is welcome news for parents dealing with rising daycare fees, as well as those who hire nannies, regularly pay babysitters or send their kids to camps and boarding schools.
The child-care deduction will increase by $1,000 in the three classifications: $8,000 (from $7,000) for a child under six, $5,000 (from $4,000) for children seven to 17, and $11,000 (from $10,000) for a child eligible for the disability tax credit. Child-care expenses are deducted from the lower-income spouse, who fills out form T778. Receipts are required to claim these deductions, Jacks says.
Parents shouldn't neglect the smaller credits available to them. While most provide just a 15% savings, any parent will tell you that it's better than nothing.
Children's fitness amount (line 365). Registering your child for soccer, swimming or gymnastics lessons doesn't come cheap. Save your receipts and this tax year, you can now claim up to $1,000 per child instead of $500. This will provide you with a credit of up to $150 on your taxes.
Children's arts tax credit (line 370). This credit is for non-sport-related activities for your child including scouts and girl guides, dance and music lessons. Parents can claim up to $500 per child and assuming they claim the full amount, will save $75. Again, receipts for any registration fees are required.
Tuition, education and textbook amount transferred from a student (line 323). Most students don't pay income tax since they generally earn little to no income. Their parents' situations are likely another story. The students can transfer the tuition credits up to $5,000 to a parent to help them offset or reduce their taxes. Assuming the child transfers the full amount, that's $1,250 back in the parents' pocket.
Adoption expenses (line 313): Parents who adopt children can claim a maximum tax credit of $11,669. The credit can be split between both parents and needs to be claimed in the year of adoption.
Amount for eligible dependant (line 305): This credit is for single parents only and is generally the same amount as the individual base personal amount.
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