As everyone knows—even those who aren’t parents—raising children is expensive. Even though basic needs like education and health care are publicly funded, there is still a never-ending list of discretionary and non-discretionary costs to be paid.
For many decades, parents of school-aged children have been provided with government assistance with the cost of raising children, whether through direct monthly payments or through tax deductions or credits claimed on the annual tax return. It can be difficult to keep track of just what benefits are available at a given time, however, since the system of payments, deductions, and credits is subject to continual review and revision. Some significant changes are being phased in over 2014 and 2015, ranging from an increase in amounts claimable by parents for everyday costs like fees for children’s sports activities, to higher monthly benefit amounts for existing child benefits, to a new income-splitting mechanism for families. Those changes also, however, include the elimination of some currently available tax benefits for families.
Changes on the 2014 tax return
Parents will first notice the changes when they sit down to complete their 2014 income tax return. For several years, parents have been able to claim a non-refundable 15% tax credit to help offset the cost of enrolling children in organized sports activities. In previous years, the maximum per-child cost which could be claimed for purposes of the credit was $500. For 2014, that maximum has increased to $1,000 per child.
There is a parallel 15% non-refundable credit which can be claimed for the cost of enrolling children in organized programs involving artistic or cultural activities. The maximum amount claimable for purposes of that credit has not, however, been increased, and remains at $500 per child per year for 2014.
The major change for families on the 2014 return is the ability to split income within a family group—the so-called “Family Tax Cut”. As is the case with all income splitting strategies, tax is saved by transferring income from a higher earning individual (one spouse) to an individual with a lower income (the other spouse). Since federal and most provincial tax rates rise as income increases, having that income taxed in the hands of the lower-income spouse means an overall reduction in the family’s tax bill.
The new income splitting strategy is available to families who have children under the age of 18 at the end of 2014. Eligible spouses can make a notional transfer (that is, a paper transfer—there is no need for any actual transfer of income) of up to $50,000 of taxable income from one spouse to the other, on the annual tax return. However, any tax savings realized by that notional transfer are capped at $2,000 per family per year.
In order to claim the benefit, both spouses must file an income tax return for 2014, and both must complete Schedule 1A. That schedule is included in the standard tax package, which is available on the Canada Revenue Agency website at www.cra-arc.gc.ca/formspubs/t1gnrl/menu-eng.html.
Changes to child benefit payments for 2015
Since 2006, the federal government has provided the Universal Child Care Benefit (UCCB) to eligible Canadian families. The taxable monthly benefit is provided to such families who have children under the age of 6, and is set at $100 per month per child.
Starting in 2015, the monthly UCCB benefit for children under age 6 is increased to $160 per month, and the program is expanded to provide a new benefit of $60 per month for children aged 6 through 17. All such benefits remain taxable.
There is an offset to the increased UCCB to be paid to Canadian families, although that offset will not be apparent until tax returns for 2015 are filed in the spring of 2016. Currently, parents are able to claim a non-refundable Child Tax Credit for each child under the age of 18. For 2014, that credit reduces federal tax by $338 (or $647 for a child in respect of whom the family caregiver amount is claimed). Beginning with 2015, concurrent with the changes to the UCCB, the Child Tax Credit is eliminated, and will not therefore be available to be claimed on the individual tax return for 2015.
Finally, although the UCCB changes take effect as of January 1, 2015, parents who receive the UCCB will not see any increase in benefits until later this year. A “balloon” payment will be made in July to cover the benefit increase for the January to June 2015 period. As of August 2015, the increased UCCB will be paid on a monthly basis, in the same way as the current benefit.
A listing of the federal tax and benefit changes which will affect families in 2015 can be found on the federal government website at www.fin.gc.ca/n14/14-184-eng.asp.
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.