Tax Tips and Pits: Tax credits and deductions for kids

"If you have kids you know they don’t come cheaply, and Canada Revenue Agency (CRA) gives parents some relief."

If you have kids you know they don’t come cheaply, and Canada Revenue Agency (CRA) gives parents some relief.

There is a $2255 non-refundable tax credit for each child born in 1997 or later. Being a non-refundable credit, only the amount needed to lower income to the point of a parent not having to pay tax can be used.  If any of the deduction is not needed, CRA doesn’t refund the balance but does allow the transfer to the other parent. This tax credit will be replaced by an increased payment under the universal child care benefit program beginning in 2015.

New for 2014 tax prep is an increase to the kids’ fitness fees amount. The fitness credit has been doubled to $1,000 translating into a $150 non-refundable credit. The arts credit has not been increased.

Common sense dictates acceptable activities.  They must be a supervised suitable activity for children, ongoing for at least 8 weeks or in the case of a camp, 5 consecutive days.  Travel and accommodation costs, school activities, and any activity involving the use of a motorized vehicle are not eligible.

The kids’ art credit remains a maximum $75 non-refundable credit on $500 of total fees. Eligible programs include artistic, cultural, recreational or developmental organized activities.  For parents not able to claim nursery school expenses as childcare, it appears this is an acceptable method to use this expense as a deduction.  School programs are not eligible.

Common to the fitness and arts credits, the child must have been under 16 at the start of 2014.  A credit cannot be split between parents but either parent can claim either credit.

Childcare costs, unlike the tax credits, are not subject to the 15% inclusion factor but instead are deducted from earned income dollar for dollar, to a specified maximum, against earned income. To be eligible, a child must have been under 16 at the beginning of 2014, unless disabled, and have net income in 2014 lower than the basic personal amount.

Eligible childcare expenses include payments to day-care centres, day camps and day sports schools, private school tuition for childcare, boarding schools, overnight sports schools and camps, and to individuals.

Payment to an individual for childcare requires the reporting of that person’s social insurance number on your tax return and, of course, this is reportable income for the childcare provider. Childcare provided by and paid to a related person who is at least 18 can be an eligible expense – an interesting way to pay your adult child who needs some cash.

The childcare expense has to be claimed by the parent with the lower net income, unless that parent is medically incapable or if the lower income parent is at school full-time for a minimum period of 3 weeks.  Separated parents sharing custody may claim an apportioned amount.

Finally, exemptions and extensions come into play for most of these credits and deductions for kids with disabilities.

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