Jessica Dorgan-Trail makes sure to use all the tax deductions and credits she's eligible for as mother of nine-year-old Alex and his six-year-old sister, Mackenzie.
As executive director of Kids West, an organization in Tignish, Prince Edward Island, that provides education and support to vulnerable children and their families, she knows that many parents need all the government support they can get.
Besides the most basic federal credit for having a child – the $319.45 credit that one spouse or common-law partner can claim for children under 18 – Ms. Dorgan-Trail will also claim the children's arts credit, which is new for 2011 and can put up to $75 per child under the age of 16 back into parents' pockets.
"It's definitely important to be able to claim the arts credit," says Ms. Dorgan-Trail, who drives weekly from Tignish, a community of 1,000, to Summerside, a city of about 14,500, for Alex's lessons in Celtic piping and Mackenzie's in highland dance. With a new arts academy expected to open in the Tignish area, Ms. Dorgan-Trail expects the new arts credit will encourage more parents to enroll their kids into programs.
On the federal front, the arts credit as well as a children's fitness credit, introduced in 2007, are "non-refundable credits" worth 15 per cent of the cost of programs, to a maximum of $500 per child. On top of that, certain provinces, including Ontario, Manitoba and Saskatchewan, offer their own credits for fitness and arts programs.
While tax credits reduce income tax payable, deductions reduce income – all with the goal of paying less tax, notes Tony Buliga, co-owner of T&L Tax and Finance, a tax-return and bookkeeping business in Windsor, Ont., and author of the book We've Seen It all … My Daily Fight With the Canada Revenue Agency.
He says one of the most common tax mistakes made by parents is failure to claim legitimate child-related expenses. One of the most under-claimed is the disability tax credit. To qualify, a T2201 form must be filled out by a "qualified practitioner" such as a family doctor, physiotherapist or psychologist.
"A disability tax credit, once approved [by the Canada Revenue Agency] can also be applied retroactively to when the condition first occurred, and can impact a parent's child tax benefit by up to $2,575 a year in addition to the tax savings associated with the credit," Mr. Buliga adds.
For working parents, claiming child-care expenses on tax returns "gives the most bang for the buck," Toronto chartered accountant Laura Couvrette says. For children six and under, $7,000 per child per year is the maximum a parent can claim, while the claim for kids aged seven to 16 is $4,000 total.
"It's the government's way of trying to put a little bit more money back into parents' hands, and if your child is disabled, you get into tax credits available with respect to care," adds Ms. Couvrette, a partner with Fuller Landau LLP Chartered Accountants and Business Advisors.
Other things for parents to keep in mind when filing taxes:
The Child Tax Benefit: In addition to the basic federal credit, a parent may also qualify for the CTB, depending on the family's net income. The rates and amounts the parent receives vary by province but, in general, if you earn more than $41,000, the CTB will decrease until it reaches zero at about $109,000. The CTB amount is determined from a parent's latest tax return, so payments will be halted if you miss the filing deadline.
Help for single parents: The largest credit available to them is the "amount for eligible dependent," commonly called the "equal-to-married" credit, which is designed to compensate for the lack of a second wage earner in a family. In Ontario, a parent who has at least one child under 18 can claim the credit, which amounts to $1,579.05 off federal tax payable, and a further $390.36 off Ontario tax payable, for a total tax savings of $1,969.41. NOTE: If a single parent's child under age 18 has income greater than $10,527 in a tax year, the parent loses the equal-to-married credit.
Which parent should make the claim: In many cases, either parent can claim tax credits, although they usually help the higher-income earner. In most cases, child care must be claimed by the lower-income parent. But if the parents aren't together and share custody, each parent may be able to claim a portion of the child-care costs, but check with your tax expert.
Universal Child Care Benefit: Parents need to apply for the Child Tax Benefit, whether they qualify for it or not, in order to qualify for the Universal Child Care Benefit. (Not everyone may qualify for the CTB if their income is too high, but they still need to apply in order to get the UCCB.) All parents with children under age six get the UCCB, in instalments of $100 a month. Unlike the CTB, the UCCB must be claimed as income by the parent with the lower earnings. If you're a single parent, you have the option of adding the UCCB income to the income of your child, for further tax savings.
Child-related medical and adoption expenses: For children up to age 18, parents can claim medical receipts for anything from medications to braces and eyeglasses (as long as private insurance plans don't pay for them fully). However, the deductible medical expenses must total a certain amount or percentage of your net income. Ms. Couvrette notes there's even a tax credit for adoption and costs related to in-vitro and other methods used to get pregnant.
Tuition credits for kids aren't straightforward: Tuition for children in postsecondary education can be a big credit for parents, but children who earn income must use whatever tuition amount is necessary first to reduce their tax to zero. The maximum federal amount transferrable to a parent is $5,000 per child, and anything left over can be carried over for the child's future tax returns when he or she earns income.
Public transit passes can be claimed: Parents can claim a 15-per-cent credit against the cost of monthly transit passes for children under age 19 at year's end.