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Do you qualify for an Adoption Tax Credit?

Tax Tips & Pits with Ron Clarke, Trail Times contributor

Bringing a child into your life is a wonderful experience, and introduces a whirlwind of expense. Just as a natural child, this also applies in the case of adoption – both the wonderment and the expense.

In fact, adopting a child often involves a set of expenses not borne by those having a baby. And Canada’s tax policy acknowledges this reality. If you adopt a child, defined as a person under the age of 18, you will likely qualify for the Canada Revenue Agency’s (CRA) adoption tax credit.

Allowable expenses are quite broad and include fees paid to a licensed agency, legal fees and court costs attributable to an adoption order, necessary travel and accommodation expenses for a parent and the child if the child is visited during the adoption process. In the case of a foreign adoption, allowable expenses include mandatory fees paid to Canada and to a foreign country for the immigration of the child, along with translation fees.

Timing is important to making the claim. For an expense to be eligible for inclusion in the claim, the expense must have been incurred after the adoption process has officially begun and before it is completed. This is referred to as the adoption period, and regardless of the length of time of the adoption period, the claim on your tax return must be made in the year of the completion of the adoption.

For 2018 tax prep, the federal adoption tax credit is a maximum $13,840 non-refundable tax credit with a matching credit offered by the BC Government.

As further explanation to this credit, although the credit can include up to $13,840 of expenses, the actual credit value used to reduce your actual tax liability is 15% of your expenses, so a max of $2,072.

Note that it is a non-refundable credit, meaning only the amount of the credit needed to reduce your taxes to zero qualifies, and any balance remaining is not refunded to you.

To this end, it’s important to know that for couples adopting a child, CRA permits the adoption credit to be claimed entirely by either spouse, or split between them as they so choose, so be sure to calculate and claim this credit to take full advantage of it for you and your spouse.

Finally, and sticking with the kid theme, for those couples unable to conceive a child and trying various natural methods, or as CRA states, “pursing the medical intervention to conceive a child,” the associated medical costs can be claimed on their T1 medical schedule as an expense. Although not a stand-alone credit like the adoption tax credit, the net effect is the same.

Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services. Email him at ron.clarke@JBSbiz.ca. To read previous Tax Tips & Pits columns visit www.JBSbiz.net.

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