Tax Tips & Pits – Tax deductions from cradle to graduation

A list of some deductions parents can use for their children.

Canada Revenue Agency (CRA) recognizes kids cost cash so some of the expenses parents absorb can be used as deductions, thankfully. Here are some common ones from cradle to grad.

So when parental leave ends and paying for childcare begins, these costs are a direct deduction from earned income.

To qualify, the child must have been under 16 during the tax year. Up to $5,000 can be claimed for each child 7 to 16 and $8,000 per child under 7. Both these figures are up $1,000 this year.

The childcare expense must be claimed by the parent with the lower net income unless medically incapable or if at school full-time.

In the case of separated parents sharing custody, the claim can be apportioned.

Payments to day-care centres, day camps, day sports schools, overnight sports schools and camps, private school tuition for childcare, and boarding schools are eligible childcare providers as long as receipts are issued. Likewise individuals who issue a receipt for childcare payments received for their services that includes their social insurance number can be claimed as an expense.

This is the last year for the federal child fitness credit. It’s a $1,000 per child refundable tax credit. This means if not all is needed to reduce taxes to zero, the balance is paid to the taxpayer. The BC Government tops this up by 50 per cent automatically and also offers an automatic “equipment” amount. This may disappear for 2016 tax prep too.

Similar to the fitness credit is the arts credit. However, this is only $500 and is non-refundable meaning that whatever is not needed to reduce tax liability to zero, the excess amount is not paid to the taxpayer. It’s unclear if this credit will be chopped for next year.

Tuition for post-secondary school is reported on form T2202a, as is the number of months of part-time and full-time schooling. Tuition is claimed in its entirety and the education amount is calculated by formula. This amount is offered to help offset the cost of books and supplies.

This part of the claim is likely being cancelled by the government next year.

The student can use this non-refundable tax credit to reduce current tax liability this year or carry it forward to claim when income is higher. If planning on using it in future years, a student must still file a tax return so that the claim gets registered in the tax system.

Another reason for the student to file a tax return is to transfer the deduction to a parent or grandparent. Up to $5,000 can be transferred but only for the year in which the education expenses were incurred.

In other words, amounts carried forward by the student cannot be transferred in future years.

Before the transfer, CRA requires the student to use as much of the credit as it takes to reduce their tax liability to zero.

And then they graduate and are on their own, or are they?

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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