With a family, our financial situation changes and so do our tax returns. Here's everything you need to know before you start your first declaration as a parent.
File even if you have no income
Benefits such as Canada Child Tax Benefit (CCTB) and GST/QST, which are calculated based on your last filed income tax return, are paid only if you file a return. Both parents must file a return in order to obtain the CCTB.
In Quebec, benefits from Child Support, a program administered by Retraite Québec, and Credit solidarity tax are also calculated from your tax returns. You don't need to have earned income to qualify for these benefits, but not filing a return means the benefits will not be paid to you.
Governments occasionally change the tax benefits for families and sometimes you are en titled to tax reductions or benefits that you will only know about by filing your tax returns. It is therefore better to submit tothis annual obligation than missing out on those benefits you may be en titled to!
Maternity leave income is taxable
Congratulations to the new parents! Amid the hustle and bustle of breastfeeding, diaper changes and daily baby care, remember that you are required to report benefits from the Quebec Parental Insurance Plan (QPIP)as income. In most cases, the tax withheld at source from QPIP benefits is insufficient to cover the tax payable when the benefits are added to other income earned in the year, so you may a balance due at the end of the year. Many parents are surprised to owe money after maternity leave, so it is better to plan ahead than to end up with unpleasant surprises.
So it's a good idea to put these sums aside, if you are able of course. You might have some money left over after you file, but at least you'll have enough to pay the taxes at the end of the year.
At the federal level, the spouse with the lowest income must claim the child care expenses, whether it is the mother or the father.
At the provincial level, the portion of subsidized childcare costs cannot be claimed. However, if your children attend an unsubsidized private daycare, or if they have participated in recognized camps, you may be en titled to a refundable tax credit calculated according to your income.
In Quebec again, we remember that, on April 22, 2015, the contribution requested from the parent whose child attends a subsidized childcare service was modified. Thus, it is now composed of a basic contribution (paid at the daycare) and an additional contribution, which is modulated according to family income and payable when filing the 2016 return. You will receive a statement 30 no later than February 28, 2017. This statement will allow you to determine the additional contribution you may have to pay when filing your income tax return for 2016.
To avoid unpleasant surprises, the Government of Quebec has offered parents the calculation tool "Additional contribution to provide for subsidized childcare services". If you haven't planned an amount to cover this new expense, you could be in for a nasty surprise.
Share your receipts
Spouses or common-law partners can pool charitable donation and medical receipts to maximize their tax savings.
For every $200 donation, you will receive a 15% tax credit, and for every dollar above the initial $200 donation, you will receive a 29% tax credit. Plus, you can stack up to five years worth of receipts to claim them all at once. Remember to combine all family donations, so you will enjoy better credit.
The same goes formedical expenses. At the federal level, it is in our interest to take the receipts of the whole family and apply them to the lowest net income since the fees will be reduced by 3% of individual income. On the other hand, at the provincial level they will be reduced by 3% of family income, so there is no impact.
The same can be done with the Family Transit Credit. Parents can even claim passes for their children under 19.
Single Parent Families
Single-parent families are eligible for eligible dependent amounts if they were alone at any time during the year with a child under 18. The calculation for the child is a bit like that of a spouse who has no salary. If the child works, the amount he earns is reduced. The basic federal amount for this child is $11,138 and can reach $13,196 if the dependent qualifies for the family caregiver amount. After all the math, you could get about $1,395 off tax if you qualify for the eligible dependent credit.
Universal Child Benefit
On January 1st, 2015, the UCCB was expanded to include a new benefit for children aged 6 to 17, and the payments parents receive for children under the age of 6 have been increased. For children under six, it has increased from $100 to $160 per month and stands at $60 per month for children undereighteen years old. In addition, certain taxpayers whose income was too high to obtain the Canada Child Tax Benefit can now apply for it.
Nevertheless, this enhanced UCCB replaces a non-refundable tax credit for children under 18, a credit that represented a net tax reduction of $344.25 per child (or $287.45 per child for residents of Quebec, due to the federal abatement). In addition, several economists have denounced the improved PUGE and it could indeed be that these new measures harm you, contrary to what was promised.
Since the UCCB is taxable, single mothers can include this amount in the child's income if it is more advantageous for them.
Balance between income and benefits
Family benefits decrease as your salary increases. So a pay raise may not change your overall financial picture.
Avoid unpleasant surprises
We think about taxes around March and April and when there are changes in our family situation. In July, with both feet in the sand, you think about it less. However, we should continue to keep abreast of government tax announcements throughout the year to avoid unpleasant surprises the following year.
Parents have a lot to do and don't always think about communicating with the government, but when we break up or when we've been with aspouse for a year, for example, these changes must be communicated to the departments concerned. This way you will avoid owing a lot of money later.
Sports and artistic activities
Governments have provided an incentive to encourage children to practice sports and artistic activities, but it does not reimburse all activities. For children under 16, the credit allocated can go up to $1,000 per year. For children's artistic activities, a maximum amount of $500 per child is allocated for fees paid. To claim these amounts, you need official receipts, not all activities qualify for this famous receipt. It should also be kept in mind that these amounts are non-refundable tax credits. They therefore reduce the tax payable.
Education savings plans don't change anything on parents' tax returns while they invest it, but when the child withdraws it, it will be included in their income. At that time, the part invested by the parents will not be taxable, it is the portion of the income generated and the Canadian grant that will be. You therefore do not need your RESP receipts to make your declarations.