Having a baby is an exciting time in a person’s life, however, the decision can be an expensive one. Fortunately, the Canadian government provides some relief when it comes to new parents.
If you are already a parent or deciding to have a baby, or have a baby on the way, here are few tax-related points that you should be aware of.
Tax Considerations When Having a Child
Tax Deductibility of Birth-Related Medical Expenses
Birth-related expenses qualify as ‘medical expenses’ for tax purpose. Qualified medical expenses exceeding $2,268 (in 2017) or 3% of the net income, whichever is less, qualify for a 15% non-refundable tax credit. This credit is useful in reducing some of the tax payable amount. Note that the $2,268 threshold is indexed for inflation each year. This amount was $2,237 for 2016 ($2,208 for 2015).
For example, let’s assume the birth related expenses for 2017 were $5,000, and the person’s net income is $50,000. 3% of this $50,000 will be $1,500, less than the $2,268 threshold. The expenses that will allowed to be claimed will be $3500 ($5,000 less $1500) resulting in a tax credit at 15% of $225. Therefore, if the total tax liability is $1,000 the person will only need to pay the remaining $775 of taxes. A provincial credit may also be available.
Assisted Reproductive Technology
Before the 2017 Canada Federal Budget, in order to claim fertility expenses as a medical expense, the couple had to be diagnosed as ‘infertile’. The new budget, regardless of whether there were medical complications or not, allows single women or same-sex couples to claim this credit. More importantly, these expenses can be claimed retroactively up to 10 years by refiling the tax return to claim the expense.
Automated Canada Child Benefits Services
When registering the birth of a new baby, a taxpayer can automatically apply for certain child benefits. These include:
- The Canada child benefit (CCB)– A tax-free monthly payment made to eligible families to help them with the cost of raising a child under 18. (discussed below)
- The Goods and Services Tax/Harmonized Sales Tax (GST/HST) Credit – A tax-free quarterly payment that helps families and individuals with low and modest incomes offset all or part of the GST or HST that they pay.
- Any Related Provincial Programs – Most provinces and territories also have child and family benefits and credits, which families can receive in addition to the Canada Child Benefit and the GST/HST credit
The ‘Automated Benefits Application’ (ABA) is a quick, easy and secure way to apply for Canada child benefits for your newborn. It is a partnership between the Vital Statistics Agency of each province and the CRA.
Once the taxpayer provides consent, the Vital Statistics Agency will securely send the birth registration information to the CRA after the child’s birth is registered. Based on the tax information available and additional information provided, the CRA will then determine which benefits you are eligible for.
To reduce delays in receiving the benefit payments consider opting for direct deposit.
See Participating provinces and territories for the list of provinces and territories offering this service.
Canada Child Benefit
As a parent of child or children below age 18, you may qualify for the Canada Child Benefit (CCB) to raise your children. The CCB is a tax-free monthly payment made to eligible families on a monthly basis.
CRA computes the benefit amount every July based on information from the individual’s tax and benefit return from the previous year. Benefits are paid from July of one year to June of the next year.
In order to receive payments the parent(s) must file a tax return every year even if there is no reportable income.
Work Income Tax Benefit (WITB)
The Work Income Tax Benefit (WITB) is a refundable tax credit that provides relief for working low-income families and individuals. Eligible individuals and families have the option to apply for WITB advance payments. The WITB advance payments correspond to a maximum of 50% of the WITB refundable tax credit that you expect to claim on your Income Tax and Benefit Return.
For tax purposes, a baby is considered as a qualifying dependent for claiming the working income tax benefit (WITB). If the parent taxpayer is already claiming the WITB, then there will likely be an increase in the benefit amount.
Eligible Dependant Amount
As a single parent, the financial burden can be even more, therefore the CRA allows a single parent to claim the ‘Eligible Dependent Amount’ if they support their child/children below age 18 and that child lives with them. To calculate the claimable amount, the taxpayer or their Canadian tax return preparer can use Schedule 5, Amounts for Spouse or Common-Law Partner and Dependants.
Note that the maximum claim for this credit in 2017 is $11,635 (indexed for inflation)
Child Care Expenses Deduction
Furthermore, if the parents are working, and they incur expenses such as: daycare or babysitting, boarding school and other similar expenses, these expenses qualify for the Canada Child-care Expense deduction. Parents should take care to maintain all the expense related receipts provided by the child-care institution, and ask for receipts if the institution does not issue one in order to substantiate the expense deduction claim.
A taxpayer can claim up to $8,000 for a child under age 7, and up to $5,000 for a child between age 7 to 15. If the child is receiving disability benefits and qualifies for the disability tax credit then the child care expenses deduction amount can increase up to $11,000.
However, note that medical expenses, education costs, clothing and transportation expenses do not qualify for the child-care expense deduction, nor do any payments made to a person below age 18 that is related to the taxpayer. For example, a payment made to a 16-year-old brother to babysit his 3-year old sister.
Other Canada Benefits Available
Disabled child – if you have a child with disability it is highly recommended to reach out to the CRA for support, such as the Canada child disability benefit payments. A child will also be eligible for some of the existing disability tax credits available.
Saving for Education – There may also be incentives for using a Registered Education Savings Plan or other such plans to save for a child’s education after high school (post-secondary education).
Provincial Programs – In addition, to the Federal Benefits, there may be provincial and territorial benefits available. You may visit the CRA website http://www.cra-arc.gc.ca/bnfts/rltd_prgrms/menu-eng.html for a link to the provincial programs.
It is always a best practice to consult a tax professional for tax advice and planning required when faced with any life-changing events, such as: marriage, having a baby or other events.
AG TAX LLP CAN HELP
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us.
Our team comprises of highly experienced tax professionals with extensive knowledge of US and Canadian tax laws as well as cross-border compliance.
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- US Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a tax consultation to discuss your US Canada cross border tax queries, please contact us at:
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.