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tax matters

I introduced my kids last week to Abbott and Costello's classic "Who's on first" comedy routine. As Costello's confusion rose over the baseball players' names and their positions - Who's on first, What's on second and I Don't Know's on third - my kids and I shared a good laugh.

This week, in what has turned out to be an election budget, the federal government appears to have taken their lead from Abbott and Costello's comedy sketch, adding yet one more confusing line to a bunch of confusing lines on your tax return, specifically that relate to caregivers.

Even experienced tax preparers are scratching their heads wondering how various tax credits for caregivers differ and which ones to claim. Let me share a primer on these. There are seven tax credits to talk about.

1. Spousal Credit (line 303 on your tax return). This credit is available if you supported a spouse or common-law partner at any time in the year and his or her net income was less than $10,382 (in 2010). If your marital status changed in the year and you made deductible support payments, you can choose to claim a deduction for those support payments or claim this spousal credit instead - choose whichever saves you more tax.

2. Eligible Dependant Credit (line 305). You may be entitled to this credit if, at any time in the year, you supported and lived with a dependant, and you weren't living with a spouse or common-law partner. The dependant must have been a parent or grandparent, or your child, grandchild, sister or brother. All of these can be relations by blood, marriage, or adoption. Other than parents and grandparents, the dependant must have been under 18 in the year or mentally or physically impaired.

3. Child Tax Credit (line 367). You can claim this credit if you had one or more children under age 18 at the end of the year. A child can be yours, or your spouse's or common-law partner's. If you had shared custody, you'll have to agree on who will make the claim for all the children who lived with both of you, otherwise neither of you will be allowed the credit. If the child did not reside with both of you, the parent who claims the eligible dependant credit (above) can claim this credit.

4. Infirm Dependant Credit (line 306). You may be eligible to claim this credit if you have a child or grandchild who is dependent on you, is 18 or over in the year, and has a mental or physical infirmity. Other dependants may qualify, too: Your (or your spouse's or common-law partner's) parent, grandparent, brother, sister, aunt, uncle, niece or nephew if they meet the criteria. With respect to this credit and the eligible dependant and caregiver tax credits, you may only be entitled to claim one of these three credits for a particular dependant.

5. Caregiver Tax Credit (line 315). If you maintained a household (alone or with another person) where you and one or more of your adult dependants lived, you might be eligible for this credit. Each dependant must have been: Your or your spouse's or common-law partner's child, grandchild, brother, sister, niece, nephew, parent or grandparent, resident in Canada, 18 or older when living with you, with an income under $14,422 (in 2010), and dependent owing to a mental or physical infirmity (or in the case of parents or grandparents, simply age 65 or older).

6. Family Caregiver Tax Credit. This credit was introduced this week in the 2011 federal budget. This is not a stand-alone tax credit but is simply an enhancement to the other credits noted above ($2,000 is added to the otherwise applicable amounts for each credit above), starting in 2012.

7. Medical Expense Tax Credit (line 331) In addition to a credit for medical expenses for you, your spouse or common-law partner or minor children, you may also be able to claim a credit for expenses paid on behalf of "other dependent relatives," including a child over age 18, grandchild, parent, grandparent, sibling, aunt, uncle, niece or nephew. The 2011 federal budget eliminated the $10,000 cap that used to exist on these expenses for other relatives.

The rules have been simplified here, particularly where (ex-)spouses are living apart. So get advice or research these credits carefully.

Tim Cestnick is president and CEO of WaterStreet Family Wealth Counsel and author of 101 Tax Secrets for Canadians.