Phew, tax season is behind us. But it's never too early to think about next year, especially when it comes to ways to get more money in your pocket. For parents, there's a lengthy list of benefits, deductions and credits. Forget one or two and you could be leaving free money on the table.
True, some of the tax relief may seem minuscule but as Jeanette Brox, a certified financial planner (CFP) at Investors Group in Toronto, says, every little bit helps. "If my clients are getting, say, $75 from a tax credit, as low as it may seem, that $75 could go into that child's RESP. Over time, it can have an impact."
The most popular of the federal government grants that support children is the Universal Child Care Benefit (line 117). It pays a parent $100 a month for every child under the age of six. This benefit is payable regardless of how much income you take home -- but you do have to fill out an application form to receive it. There's a catch: the lower-earning spouse must pay tax on the child-care benefits received.
Another federal grant, the Child Tax Benefit, pays about $1,300 a year but is dependent on your income and the number of children you have. It tends to be for lower-earning families.
Deductions allow you to lower the amount of income tax paid on your overall income. The child-care deduction on line 214 encompasses many items including payments to a daycare centre or nursery school, babysitters, nannies, camps and boarding schools, says Frank Di Pietro, director of tax and estate planning at Mackenzie Financial. Generally, this deduction is limited to $7,000 for each child age six and under and $4,000 for each child between the ages seven and 15.
With boarding schools and overnight camps, there are certain restrictions. "The type of camp will determine how much of a deduction you get," he says. "If you send your child away for a week, [you can claim] $175 a week for each child age six and under and $100 a week for each child between seven and 15."
As for credits for parents, there are many small items on your tax return. "Credits help to reduce federal taxes payable so they are essentially worth 15% of whatever credit amount you claim," says Di Pietro. The main ones are as follows.
- Child amount (line 367). This credit was introduced in 2007 and one parent can claim it for any child under age 18. In 2010, the amount was $2,101, and works out to a value of $315 per child.
- Children's fitness amount (line 365). Parents can claim the registration costs for their child's physical education programs. Think swimming or soccer registrations, golf tune-ups and hockey tournaments. You can claim up to $500 per child. Assuming you claim the full $500, that works out to a $75 credit per child.
- Children's arts tax credit (line to be decided next year). This is a new credit introduced in the June federal budget and will be on next year's tax form. Have your kids in girl guides, scouts, painting classes or music lessons? Add up those registration costs and you can claim up to $500 per child, again resulting in $75 savings per child.
- Tuition, education and textbook amount transferred to a child (line 323). Many children, since they earn little to no income, have more than enough tuition credits to offset or reduce their taxes to zero. If they have left-over tuition credits, they can transfer up to $5,000 to a parent. "You're looking at tax credits of roughly 25% when you factor in both federal and provincial tax savings," says Di Pietro, so assuming the child transfers $5,000, that's $1,250 back in your pocket.
- Adoption expenses (line 313). Parents who are adopting children can claim a maximum tax credit of $10,975 (2010 figure), providing savings of $1,650. "It's a credit that can be split between the parents," Brox notes. "It's a big help because adopting can be expensive between paying an agency, the travel and the legal end of things." These expenses need to be claimed in the year of adoption, notes Di Pietro.
- Amount for eligible dependant (line 305). This is for single parents only, whether widowed, divorced or single with child. "It's the same as the basic personal amount which was $10,382 in 2010, resulting in tax savings of $1,550," says Di Pietro.
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