TAX: Family Matters!
by Michael L. Crawford, BA(Hons), CMA
When you prepare your personal tax return, it isn’t all about you; your family matters too. This list is by no means complete, but focuses on some of the common credits available to you when preparing your return.
Canada Child Tax Benefit (CCTB)
The Canada Child Tax Benefit (CCTB) is a monthly amount paid to eligible families. In order to be eligible for the credit you must be the primary caregiver for your child who is under the age of 18 and living with you.
The Canada Revenue Agency generally considers the female parent to be the primary caregiver but the credit may be available to the father, grandparents or other legal guardian depending on the facts of a situation. You must be a resident of Canada and your spouse (or common law partner) must also be a citizen of Canada or “…a protected person, or a temporary resident who has lived in Canada for the previous 18 months,” according to www.cra-arc.gc.ca/bnfts/cctb/fq_qlfyng-eng.html.
The application for the CCTB is made when your child is born and the forms are usually provided by the hospital. If the application is not completed through the hospital or you and your child are new to Canada, you may use Canada Revenue Agency form RC66 Canada Child Benefits Application. After the first application for the CCTB, later applications are made simply by filing your tax return. Even if you have no income you must still file a personal tax return annually to determine your eligibility for the credit.
In addition to the basic benefit, low income families may be eligible for the National Child Benefit
Supplement (NCBS). It is important to note that the CCTB is “income tested”. In other words the benefit is reduced once family income reaches a certain level.
Child Amount Tax Credit
Either parent (but definitely not both) may claim $2,038 for a child(ren) born in 1991 or later (in 2009, it will be $2,089 for kids born in 1992 or later). You may take advantage of this credit immediately by completing CRA form TD1 (2009) Personal Tax Credits Return and submitting it to your employer. This will reduce the amount of tax you will have to pay each pay period.
Amount for an Eligible Dependant
The amount for an eligible dependant (formerly known as the equivalent to spouse amount) is for individuals who do not live with a spouse or common law partner but support an eligible dependant, when that dependant’s income is less than $9,600 (2009: $10,100).
It is important to note that this credit is reduced on a dollar for dollar basis for every dollar the dependant earns. In other words if you are eligible for this credit and your child earns $1,000 at a summer job the credit would be reduced to $8,600 (2009: $9,100). However, if you have more than one eligible dependant you may choose which dependant to claim. So if one child earns $1,000 at a summer job and another child earns nothing you are free to claim the child who had no income thus maximizing the credit.
Just like the Child Amount Tax Credit you may take advantage of this credit immediately by completing CRA form TD1 (2009) Personal Tax Credits Return and submitting it to your employer.
I would also like to note that in my practice this credit is frequently overlooked by individuals preparing their own tax returns and yet is one of the best for single parents who often need every financial advantage available to them.
Transferable Tax Credits
Disability Tax Credit
Assuming that an eligible dependant is entitled to the Disability Tax Credit (see sidebar), there are two things you should know:
• Any unused part of the credit is transferable. Although the calculation is diffi cult at best and it is a good idea to seek professional help with it.
• Individuals under the age of 18 can receive additional supplements. But these supplements are reduced by child care expenses and once an individual has spent $6,494 in child care expenses the supplement is completely lost.
Tuition and Education Amounts can be transferred from the student to a parent; from the student to a spouse; from a student to a grandparent or from the student to a legal guardian.
The student must use whatever amount necessary to bring their taxable income to zero. The person receiving the excess credit is limited to a maximum of $5,000 per child less any amount already claimed by the student. Any amount over $5,000 per child is carried forward to the following year to be applied to the student’s tax return. Amounts that are carried forward may not be transferred in later years. The Tuition Tax Credit is available even if your eligible dependant attends an out-of-country university.
Charitable donations may be transferred between husbands and wives, including same sex partners. It does not matter who made the actual contribution, or from which spouse the funds came. The Canada Revenue Agency appreciates that spouses frequently act as “agents” for one another and does not require an accounting of which spouse contributed which amount to which charity. A couple should pool their charitable donations and claim them on the higher income spouse’s tax return.
Medical expenses may also be transferred and shared between spouses in a similar manner. The medical expenses should be pooled for both spouses and dependant children but you are likely to get more money by claiming it on the lower income spouses’ tax return. Medical expenses may be transferred from other eligible dependants as well but the rules become much more complex in calculating the tax credit available. Once again the important point is to be aware that a transfer is possible and if the eligible dependants’ expenses are large (As in the case of a nursing home resident) and/or the income is low.
Children’s Fitness Tax Credit
This is probably one of the easiest tax credits to understand but deserves to be mentioned because it is fairly new piece of legislation. Simply put, you may claim up to $500 (must be supported by receipts) per child (under the age of 16) for any recreational or sporting activity that promotes physical activity.
The Caregiver Amount (not to be confused with the Attendant Care Amount – a medical expense) is an amount available for individuals, or their spouses or common law partners who live with an aunt, uncle, parent, grandparent, niece, nephew, and to which all of the following apply:
• They were over 18 at the time they lived with you;
• Their net income was less than $18,081 (2009: $18,534)
• And they are dependant on you due to a physical or mental impairment.
If they are a parent or grandparent and they were born in 1943 (2009: 1944) or earlier, you may claim up to a maximum of $4,095 (2009: $4,198). In order to be eligible for the full amount your eligible dependant must have a net income of $13,986 or less (2009: $14,336). The credit is reduced dollar for dollar over this amount.
The Income Tax Act is a large and complex law that frustrates even the professionals at times.
This article is intended to increase your awareness of issues that affect you and encourage you to look more closely at the ones that relate directly to your situation.
You are encouraged to seek professional guidance specific to your unique situation.