November 3, 2014
On October 30, 2014, Stephen Harper announced several tax changes which will benefit Canadian families with minor children. The concepts behind these changes were previous election promises which the Government can now afford based on the budget being balanced.
Harper announced the long-promised income splitting will be coming into fruition for couples who have children under 18, effective for the 2014 taxation year. The Family Tax Cut will allow families with spouses who are in different tax brackets to split income. Up to $50,000 can be transferred from a higher earning spouse to a spouse in a lower tax bracket, provided the couple has a child under 18. The tax relief provided by the Family Tax Cut will be capped at $2,000 in federal tax savings.
Increase to Universal Child Care Benefit
Currently, parents with children under the age of six receive a benefit of $100 per month per child from the Government. Beginning in 2015, this will increase to $160 per month. Further, parents with children between the ages of 6 and 17 will now receive a benefit of $60 per month per child. For the 2015 year, parents will receive the benefits for the first 6 months in July as a lump-sum payment. As is currently the case for the UCCB, these amounts will have to be included in the taxable income of the lower-income spouse when tax returns are filed.
The changes to the UCCB will replace the existing Child Tax Credit, which will reduce, but not eliminate, the overall benefit of these changes for parents.
Change to Child Care Expenses
Parents are able to deduct child care expenses from earned income for tax purposes. Previously, the maximum deduction has been limited to $7,000 per year per child under age seven and $4,000 per year per child between the ages of seven and sixteen. These amounts are increasing by $1,000 each, to $8,000 and $5,000 respectively. As well, the maximum child care deduction amount for children who are eligible for the Disability Tax Credit will increase from $10,000 per year to $11,000. These changes are effective for the 2015 taxation year.
Children’s Fitness Tax Credit
Earlier this month, the Government had announced improvements to the Children’s Fitness Tax Credit. The credit is applicable for sports and fitness expenses paid for children under the age of 16. The Government doubled the allowable expenditures on which a Credit can be claimed from $500 to $1,000 and also made the credit refundable, meaning parents who are not subject to tax because of low personal income will be able to receive a refund of this credit, rather than it only being deducted from federal tax otherwise payable.
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