Last-Minute Tax Tips for Families

Maximizing Deductions and Minimizing Stress

Tax season can feel especially chaotic for families. Amidst the demands of work, juggling school schedules, and managing extracurricular activities, it’s easy for tax planning to slip through the cracks.

But fear not! Even with the deadline fast approaching, proactive steps can potentially save you money and make the filing process less of a headache. Let’s dive into some family-focused tax strategies!

Childcare Expenses: A Valuable Deduction

• Who Qualifies: Generally, the parent with the lower net income claims this deduction. However, there are exceptions, such as single-parent households or when one spouse is in school or unable to work due to disability.
• Eligible Expenses: Costs for licensed daycare, day camps, overnight camps, before/after school programs, and even fees paid to a caregiver in your home might qualify. Nannies or babysitters may be eligible, but specific CRA rules (around payroll deductions) must be followed
• Limits Apply: Deduction limits vary based on the age of the child, the type of care, and there may be additional limits if a child has a disability. Retain meticulous records of who provided the care, the payment dates, and amounts – the CRA often asks for proof!
• Splitting the Claim: In some scenarios, it may be strategically advantageous to split childcare deductions between parents. A tax professional can advise on what works best for your family’s unique income situation.

Children’s Fitness and Arts Credits: Get Active, Get Creative

• Fitness: Registration fees for eligible physical activity programs for children under 16 can be claimed (up to a specific annual limit). This includes sports teams, swimming lessons, dance classes, martial arts, horseback riding, and more!
• Arts: Programs that focus on artistic development, cultural activities, or creative skills qualify. Eligible activities include music lessons, art or drama classes, and even membership in organizations like Scouts or Cadets where there’s a skill development component.
• Save Those Receipts: Proof of enrollment and payment are essential in case of an audit. Check if the program provider issues a standardized receipt that includes the necessary information for claiming the credit.
• Phase-Out Alert: These credits are gradually reduced when family income exceeds certain thresholds. A tax professional can help optimize the claim based on your income level.

RESP Contributions: Invest in Your Child’s Future (and Get Tax Perks!)

• Long-Term Savings: Registered Education Savings Plans (RESPs) are government-supported accounts that help families save specifically for post-secondary education costs, whether it’s university, college, or trade school.
• Government Grants: The Canada Education Savings Grant (CESG) matches a portion of your RESP contributions – basically, free money for your child’s future! The grant’s percentage depends on your income level, with lower-income families often receiving a higher match.
• Income-Based: There are lifetime contribution limits and CESGs have income-based thresholds. Prioritize early contributions if you’re financially able, to maximize the benefit of compounding growth and those government grants.
• Last-Minute Counts: Contributions made within the first 60 days of the year are eligible for the previous year’s CESG. If you have some extra cash flow near the tax deadline, a last-minute RESP boost could be a smart move.

Medical Expenses: When Healthcare Costs Bring Tax Relief

• The Threshold Matters: For these expenses to result in a tax credit, they must exceed a certain percentage of your family’s net income (typically 3%, or a lower amount prescribed by a doctor).
• Eligible Expenses Are Broad: Beyond the basics like prescriptions, dental care, and vision costs, this can include specialized therapies, attendant care, devices like hearing aids, and even travel expenses over 40km for treatment not available locally.
• 12-Month Flexibility: You can claim eligible expenses from any 12-month period ending in the tax year, potentially maximizing the claim by timing it strategically. A tax professional can help with this.

Claiming Dependents: Family Structure Impacts Filing

• Spouse or Common-Law Partner: This designation can affect eligibility for certain credits. Plus, your combined income impacts income-tested benefits or the phase-out of various tax breaks.
• Eligible Dependent Credit: If you support a child, grandchild, or other dependent relative who lived with you and relied on you financially, you may qualify for a tax credit.
• Canada Caregiver Credit: Providing care for a dependent with specific needs, whether due to age, illness, or disability, could result in significant tax savings. Eligibility rules are complex, so consult a tax professional if you’re unsure.

Additional Family-Friendly Tax Tips

• Disability Tax Credit: If you or a family member have a severe and prolonged impairment (physical or mental), this complex but valuable credit can result in significant tax savings. Along with the potential credit itself, it may open eligibility for other related deductions (attendant care, certain medical expenses, etc.). The application process requires detailed medical certification, making professional assistance advisable.
• Child Benefits: Programs like the Canada Child Benefit (CCB) and similar Ontario-based benefits offer financial support for families. However, these are income-tested. Filing your taxes on time, even if you currently owe nothing, is crucial as it determines your eligibility and ensures you receive the full amount you’re entitled to. Late tax filing can delay or even halt those important payments.
• Moving Expenses: Did you relocate at least 40km for a new job or to attend school full-time? Some associated moving costs may be deductible. Eligible expenses might include hiring movers, transportation and storage of goods, temporary living expenses, and even the cost of selling your old home. Strict rules and recordkeeping are essential, so a tax professional can maximize this deduction.
• Home Buyers’ Amount: This credit provides a small tax break for first-time homebuyers. If you or your spouse/partner recently became homeowners, you might be able to claim this credit to reduce your overall tax burden.
• Charitable Donations: Supporting causes you care about also comes with tax advantages! Donations to registered charities over the course of the year can be combined onto one spouse’s return for greater benefit. Keep in mind that donation credits start to offer increased tax savings when your annual contributions exceed a few hundred dollars.
• Pension Income Splitting: If one spouse receives pension income, transferring a portion of it to a lower-income spouse might lower your overall tax liability.

Proactive Planning Pays Off (Year-Round!)

Tax rules are complex, and family situations often involve multiple factors with potential tax implications. While last-minute action is better than none, accountants offer valuable guidance all year long, ensuring you don’t miss opportunities and that your financial decisions are tax-optimized for your family.

K.K. CPA: Your Family-Focused Tax Ally

From maximizing childcare deductions and navigating RESP strategies to exploring eligibility for lesser-known credits, we help Ontario families keep more of their hard-earned money. Contact us for a consultation and let’s make tax season less stressful for your family – this year and beyond!