Education, Families

Your Kids Can Pay Off at Tax Time

By Sean Cooper

Your kids can make you eligible for several tax-saving credits, deductions and benefits beginning in 2014.

Let’s face it, raising children is an expensive proposition. From food, clothing and child care when they’re younger to education and automobiles when they get older, it can all add up by the time they fly your nest. You’ll be pleased to know that the Canada Revenue Agency has your back, and not just at tax time.

The CRA currently offers a non-refundable child tax credit to parents raising children who are younger than 18. Non-refundable means you can use the credit to pare away at your tax bill, but if you lower your tax liability to zero and still have some of the tax credit left over, the CRA won’t send you a check. The Universal Child Care Benefit, designed to help families bridge the demands between earning a living and raising their children, has historically paid up to $1,200 a year to families with children under the age of six. This is all about to change in 2015, but in a good way.

The UCCB replaces the child tax credit in 2014 with a few nifty new advantages tacked on for good measure. The benefit increases up to $1,920 for kids younger than six and now children between six and 17 years old can qualify you for a benefit of up to $720. The benefits are paid monthly beginning in July 2015 and that first July payment will include the first six months of the year. The not-so-good news? The benefits count as taxable income.

Then there’s the Family Tax Cut. If you’re eligible, this provides a non-refundable credit of up to $2,000 to families with children under 18. Beginning with the 2014 tax year, this allows one spouse to transfer up to $50,000 in income to the other spouse. If one of you earns a great deal and the other earns much less, you know that in years past, the higher earner paid a whole lot in federal income tax because the tax rates increase with the amount of your income. The Family Tax Cut allows you to move some income away from the spouse who would pay a higher rate so you’re taxed on it at the lower rate of the other spouse. The rule applies to common-law partners as well.

So how does this provision interact with the non-refundable credit? The credit is based on the taxes you save by transferring income from one spouse or common-law partner to the other.

The Child Care Expenses Deduction has been around for a while, but this is being tweaked, too. If you have to pay for child care so you or your spouse or common-law partner can work, go to school, run your business or perform research under the terms of a grant, you can claim this deduction subject to a few rules.

• Your child must be 16 or younger or suffer from a mental or physical disability.

• The caregiver must meet certain requirements such as age and relationship to the child.

• If your child has any income of his own, it can’t exceed $11,138 as of 2014.

These rules are the same as they’ve always been, but some changes take place beginning with the 2015 tax year. The available deduction goes up by $1,000. It can only be claimed by the parent with the least income, and if you both earn the same, you’ll have to reach an agreement on who gets it.

The Children’s Fitness Tax Credit encourages you to help your kids stay active and healthy. This credit doubles in the 2014 tax year from $500 to $1,000 per child and in 2015, it becomes refundable. If it whittles your tax debt down to nothing, you’ll receive anything left over in the form of a tax refund the following year.

So what do you have to do to earn it? Enroll and send your child to a program that promotes physical activity. A few rules apply. The program must last at least eight weeks with the exception of summer camp — in this case, it can be as short as five consecutive days. It must be supervised and not involve tooling around in some sort of powered vehicle, at least not as a substantial part of the activity. Motor sports don’t count but horseback riding is OK — the horse isn’t motorized. School sports don’t count, either. The activity program must be something in which your child participates in addition to academic sports. And your child must be under 16 unless he has a disability. In this case, the cutoff is age 18 and the requirements for physical activity are loosened. With some restrictions, the credit can increase by $500 for children with disabilities.

References & Resources

  • Canada Revenue Agency: Family Tax Cut
  • Canada Revenue Agency: Information about Child Care Expenses (PDF)
  • Canada Revenue Agency: Line 365 — Children’s Fitness Amount
  • Canada Revenue Agency: Universal Child Care Benefit (UCCB)

About the Author

Sean Cooper is a financial journalist and personal finance expert. His areas of expertise include real estate, mortgages, pensions and retirement. His articles have been featured in major publications, including the “Toronto Star,” the “Globe and Mail,” MoneySense and RateSupermarket.ca.