The majority of Canadian families hand over nearly half their earnings to the government in the form of taxes. Don’t let even more money slip through your fingers by not taking advantage of all the tax breaks available. “Some of these tax credits may not seem huge but people make a mistake when they think they don’t add up to anything,” says Cleo Hamel, a Calgary-based senior tax analyst at H & R Block.
“In fact, they can result in substantial savings, especially if you have more than one child.” One-third of Canadians file their own taxes. If you’re among them, double check that you aren’t missing out on any family-related deductions. Here’s a rundown of the deductions, tax credits and benefits, and filing tips that Hamel says should help your bottom line.
An amount that is subtracted directly from your gross income
CHILD CARE: If you send your child to daycare or hire a babysitter in order to go to work or school, you can claim child care expenses. The deduction limit is $7,000 for each child under the age of seven and $4,000 for children seven to 16 years of age. If your child is eligible for the disability tax credit (see below), the limit is $10,000. Fees paid to a nursery school or summer camp can qualify as child care expenses if you incurred them while you were working or going to school.
SPOUSAL SUPPORT PAYMENTS: These are deductible by the spouse who makes them and taxable by the spouse who receives them.
An amount that is subtracted from your tax owing, usually a percentage
CHILD TAX CREDIT: You can claim $2,089 for each child under the age of 18 who lives with you. This translates into a tax savings of $310 per child.
ELIGIBLE DEPENDANT AMOUNT: Once called the equivalent to-spouse amount, this gives single parents who are supporting children a tax break equivalent to that enjoyed by taxpayers who support a spouse. It’s a $10,320 credit with an actual tax savings of $1,500.
CHILD FITNESS TAX CREDIT: Since 2007, this credit of up to $500 for each child under 16, enrolled in an eligible physical fitness activity program, results in a tax savings of $75 per child, enough to buy you more than a few lattes while junior is skating around the rink. Make sure you keep your receipt when you enrol your child in any of these programs.
MEDICAL EXPENSES: Check to see if you have enough medical expenses to get a tax credit. Get a year-end statement from your pharmacist and dentist and tally the expenses for the year. If you have a drug plan, the portion that is not covered can be claimed as a medical expense. For example, if a family of four spends $5,000 a year on dental care and only 80 percent is covered, the remaining 20 percent ($1,000 in this case) can be claimed. Remember too that premiums paid to a health plan are considered a medical expense. Only medical expenses in excess of the $2,011 (or three percent of net income, whichever is less) can be claimed. Note: You must include receipts for medical expenses when you claim the tax credit.
TRANSIT PASS TAX CREDIT: Monthly and yearly transit pass users are eligible for this credit. The amount claimed is multiplied by the lowest personal income tax rate (15 percent). So if your monthly pass costs $100, you can claim $1,200, which would result in a tax credit of $180 ($100 x 12 months x 15 percent). You can claim these costs for any dependent children under 19. Be sure to keep your passes so you can substantiate the amount you spent.
GST/HST CREDIT: The GST/HST credit is a tax-free quarterly payment that helps individuals and families with low and modest incomes offset all or part of the GST/HST they pay. The amount is calculated based on your family’s net income and the number of dependent children for whom you have registered for the Canada Child Tax Benefit or the GST/HST.
HOME RENOVATION TAX CREDIT: Have you installed a new roof or updated your bathroom? Be sure to claim it on your taxes. For 2009 only, there’s a 15 percent tax credit that applies to any home improvement expenditure above $1,000 and up to $10,000.
TUITION, EDUCATION AND TEXTBOOK CREDITS: These credits allow students of any age to reduce their income taxes by taking into account eligible education expenses. (Parents may be able to claim these amounts if they are transferred from the student.) Total annual tuition fees are claimable as well as an education amount tax credit of $400 per month for full-time students ($120 per month for part time students); the textbooks tax credit is $65 per month for full time students ($20 per month for part-time students). If the student’s income is too low to claim these credits, they can carry them forward for future.
An amount that is paid to you depending on your income, usually a percentage
CHILD DISABILITY BENEFIT: This benefit applies to families who care for a child under 18 with a severe and prolonged impairment in mental or physical functions. The benefit can be as high as $2,455 per year.
CANADA CHILD TAX BENEFIT: The amount of this tax-free monthly payment for children under 18 is calculated based on the number of children in your family, the province or territory of residence and the family’s net income. Check out the Child and Family Benefits Calculator at the Canada Revenue Agency’s website at www.cra-arc.gc.ca.
UNIVERSAL CHILD CARE BENEFIT: Introduced in 2006, this is a $100 monthly payment for each child under the age of six, regardless of the family’s income. The benefit is taxable in the hands of the lower-income spouse.
FILE ON TIME: Late filers are subject to an automatic five percent penalty on any unpaid tax, plus an additional one percent on the amount owing for each month the return is late, up to a maximum of 12 percent.
FILL OUT THE RIGHT FORM: With the birth of a child, you will need to complete Form RC66, Canada Child Tax Benefit Application, and send it to the Canada Revenue Agency to register your child for the Child Tax Benefit, the Universal Child Care Benefit and the GST/HST Credit.
ENSURE THE STAY-AT-HOME PARENT FILES A RETURN: Even if that parent doesn’t earn an income, it’s important to file because the government looks at both returns to determine eligibility for the Child Tax Benefit.
IT’S NEVER TOO SOON FOR YOUR CHILD TO FILE: If your son or daughter has earned money from part-time jobs or even casual employment such as babysitting or shovelling snow, they should file a tax return to begin establishing RRSP contribution room for use in the future.
Originally published in ParentsCanada magazine, March/April 2010.
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