A couple of weeks ago, we released an article of tax credits for children`s activities. We revisit the tax benefits that you can claim from your children this week by looking at child-care expenses. This is an issue that faces many Canadian families and is a very common topic during tax season. The source of information in this article comes from the CGA 2011-2012 personal tax guide.
A claim may be made for expenses incurred on behalf of eligible children to allow individuals or their spouses or common-law partners to:
- Earn income from employment or self-employment.
- Spend at least 12 hours per month studying in an educational programlasting at least three consecutive weeks at a secondary school, college,university or other designated educational institution.
Generally, the parent with the lower net income claims the least of:
- The actual amount paid.
- Two-thirds of that parent’s earned income.
- $10,000 for each child on whose behalf a disability tax credit may be claimed, regardless of age; plus $7,000 for each other eligible child under seven at year-end; plus $4,000 for each other eligible child between seven and 16, inclusive (extending past 16 only for children who have a physical or mental infirmity and remain dependent on the taxpayer or spouse).
Eligible children include the taxpayer’s, the spouse’s or common-law partner’s natural or adopted children, or one for whom the individual had custody and contributed to the support; who was under 16 at any time in the year; or dependent by reason of mental or physical infirmity.
Although one condition of being able to deduct child-care expenses involves earning a living, this deduction might still be available during periods in which temporary, extenuating circumstances, such as a strike or other labour stoppage, prevent you from working. Furthermore, there may be other instances when child-care expenses remain deductible because the services provided help enable a parent to earn a living or attend classes, even though the services were not provided at the exact time they were at work or school.
For parents of children with a disability, there is no requirement that the parent claiming the child-care expenses for eligible services, such as baby-sitting, or those provided at a day nursery or day-care centre, among others, be the one who claims the disability tax credit (DTC) on behalf of an eligible child. In many cases it will be advantageous for the other parent to claim the DTC. In some cases the child, after having attained the age of majority, might be able to claim the DTC.
A maximum of $250 per week can be claimed for all children 16 or younger for whom anyone is entitled to claim a DTC. Under certain conditions, the supporting person with the higher income will be able to claim child-care expenses, up to $175 per week for each child under seven or who has a severe disability, plus $100 per week for other eligible children. For example, in two-parent families where one spouse or common-law partner is working while the other is studying full- or part-time, the higher income spouse
is eligible to claim a deduction (for part-time education the corresponding amounts eligible for deduction are $175/$100 per month, respectively).
Parents who have shared custody for a child over the course of a taxation year might each be entitled to claim a deduction for eligible expenses incurred while that child resided with them. Payments made to a boarding school or camp, including a sports school that requires lodging, qualify up to a maximum of $175 per week per child under seven and a maximum of $100 per week for other eligible children between seven and 16, inclusive.
The child-care portion of fees paid to a private school that provides both educational and child-care services (such as before or after-class supervision) might also be deductible as child-care expenses. A grandparent who supports grandchildren may be able to claim child-care expenses as the primary caregiver.
The deductibility of summer day camps, sports schools or other recreational activities may depend on factors such as the child’s age, the program’s sophistication (e.g., if it is oriented more toward achieving a progressive, measurable improvement in skills, rather than serving as a recreational sporting activity, the CRA would generally not equate that to child-care), and whether such expenses are incurred to allow the parent or supporting person to carry on earning a living. Court cases have also emphasized that the expenses incurred should relate primarily to guardianship, protection and child-care.
Child-care expenses claimed might reduce the amount eligible for the taxpayer to claim as a child tax benefit.
For further information, please contact Brightstar at 416-498-1988 or at email@example.com
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