Don’t get too excited here people but RRSP season (see previous post) is about to give way to full blown personal tax season. As a professional tax preparer, I know firsthand that tax savings aren’t just for the incredible wealthy and/or the self-employed. Here a simple few ways all parents can keep the CRA out of their pockets (or not as deep I should say).
Maximize your childcare expense deduction by aggregating
Childcare expenses can be deducted when they’re incurred for the purpose of earning income (taking your ass to work). Sorry but the babysitter’s tab after you run out to plow through a basket of wings on NFL Sunday is on you (did you really need that second basket…shame on you). Okay, back on track – for the most part any amounts paid to non-family members for watching over your children are eligible for this deduction.
The maximum deduction bounces around budget to budget, but for now the lower income parent can deduct up to $7,000 for each child 6 or under, and up to $4,000 for each child aged 7 to 15. At least until the little ones are in school, most parents are hard pressed to keep the annual cost below the $7,000 limit; and that is the basis for goodie number one.
Parents are able to aggregate their childcare expenses across all children. This confers a benefit when expenses for children under 7 (let’s call him Bobby) exceed $7,000 but expenses for children over six (let’s call her Suzie) fall short of $4,000. In other words, Suzie’s shortfall can be transferred to Bobby. This scenario is fairly typically as kids over 7 are in school full time, limiting the need for childcare.
Fitness and arts credits
Not only is our government picking up part of you babysitting tab, more recently they’ve decided to chip-in to get Bobby and Suzie’s butts of the couch and into a fitness or arts program. Be sure to include the following applicable goodies on your 2014 personal return:
1) Federal Children’s Fitness Tax Credit: Parents are entitled to a tax credit for each child under 16 enrolled in an eligible program of physical activity. The credit is 15% of the lesser of $500 or the eligible expenses incurred (maximum credit of $75).
2) Federal Children’s Art Tax Credits: Parents are entitled to a tax credit equal to 15% of an amount up to $500 of eligible expenses (maximum credit of $75) per child under 16 paid in respect of qualifying artistic, cultural, recreational and developmental activities programs.
3) Ontario Children’s Activity Tax Credit: parents can claim up to $541 in eligible expenses and get up to $54.10 back for each child under 16 (and is in addition to the related Federal credits). The tax credit covers fitness and non-fitness activities. Most all traditional children’s activities will qualify.
Other provinces offer a credit similar to Ontario that is in addition to the Federal credits. A simple Google search of “children’s fitness and arts credits” will get you all the information you need across the respective federal and provincial government websites; including specifics on what costs qualify.
If you have three children partaking in eligible activities, you’ll get up to $400 back between the federal and Ontario credit. That’s sure to cover a few greasy baskets next Sunday right?
Be sure to obtain and hang onto the receipts for all activities being claimed (same goes for childcare expenses). You don’t need to provide to CRA on filing your tax return but will be required to provide to CRA if you’re audited down the road.
To get fancy for a moment, if you’re in higher tax bracket and haven’t hit on the maximum allowable childcare expense, claim the fitness and arts costs as a childcare expense instead. This is because the childcare expense deduction will provide more tax savings than the tax credit received by claiming under the fitness and arts programs. Be sure to consider the earning income caveat associated with childcare expenses of course.
Make sure you’re receiving all the childcare benefits
No parental tax goodies list would be complete without a mention of the top category…those which require no initial outlay. I’m won’t go into detail here other than to list them and say be damn sure your cheque (or better yet direct deposit) comes in each month. While registration for the various benefits is more-or-less automatic through hospital birth registrations, things can slip through the cracks when it comes to paperwork.
The Universal Child Care Benefit (UCCB) is likely the most well-known of the straight hand-outs (I use the term loosely). It pays $100/monthly per child to all parents with children under six. The other straight benefits are the Federal and Provincial versions of the Canada Child Tax Benefits (CCTB). These are income tested and thus not available to all parents.
The take-away here to ensure you are receiving the UCCB and the federal and provincial versions of the CCTB; or in the case of the CCTB that you were considered but ineligible because you’re making too much paper! There are two ways to figure out what you’re receiving: reviewing the documents received in the mail OR call the government agencies and ask. As the paperwork isn’t always to the point, I recommend calling.
File a tax return for your income earning teenager
“No need for Timmy to file a tax return, he only made $5,000 working at McDonalds last year and doesn’t owe any tax.” Ever heard or thought that before? It’s bogus for at least three reasons:
1) Filing a tax return and reporting the income creates RRSP contribution for down the road when Timmy starts making the big bucks
2) If income is under $11,000, give-or-take, it’s likely that Timmy owes no tax. However, it’s also likely that some tax was withheld by McDonalds. Filing a tax return results in a refund of the tax withheld. Beats paying him an allowance right?
3) Filing a return should be turned into a teaching moment. Explain to Timmy the importance of filing an accurate tax return annually and on time. Teach him about the specifics of your own tax return (or get your accountant to). Also explain the basics of CPP and EI (if you don’t know yourself, it’s time to put the basket down and find out). Having seen countless examples of people getting behind in their tax filings and the stress and additional cost sure to accompany, this is by far the most beneficial of the three.
In my opinion, the most advantageous tax break for parents is the Registered Education Savings Plan (RESP). See previous related post here.
Ok parents, tax savings can be this simple. An hour or two a year to get these goodies working for you can quite honestly saving hundreds, if not a few thousand dollars. Do it yourself or in concert with your professional tax preparer.
The author, Pat Kenney, is a Certified Professional Accountant. He has worked in public practice at a local boutique CPA firm in Mississauga for 9 years. He currently holds a senior management position.by