For many Canadians, tax savings start right at home through credits and deductions that are available to families. In most cases, simply being married or in a common-law relationship can have a significant impact on how you are taxed.
Some noteworthy tax breaks enter the picture if you have children. These come in the form of a deduction for child-care expenses on your tax return and payments through the Canada Child Benefit. And in some cases, parents can deduct college tuition and possibly other post-secondary education costs.
Child-Care Expenses
You can deduct the cost of daycare, nanny-hire and other child-care expenses if these were incurred to allow you as a parent to work or attend school. You can claim $8,000 for each child under age 7 and $5,000 for each aged 7 to 16. Disabled children of any age bring a credit of $11,000, as long as their circumstances qualify for the disability tax credit.
Eligible child-care expenses include caregivers (nannies), daycare services, day camps, and, to an extent, overnight camps and boarding schools. Note that:
- In a two-parent family (including situations where parents live apart but have shared custody), child-care expenses must be claimed by the parent with the lower income. Single parents can deduct expenses from their own income.
- The expenses you may deduct are limited to two-thirds of the earned income of the lower-income spouse or single parent. “Earned income” for the most part is equal to your employment income; this is the same amount on which you base your annual RRSP contribution.
- The deduction is based on when the services are provided, not when payment is made. So if you pre-paid last December for 2022 services, you cannot claim this amount on your 2021 tax return.
- Boarding school and overnight camp fee deductibility are subject to some complex restrictions, beginning with $200 a week for a child under age 7, $125 for a child age 7 to 16, and $275 for a disabled child of any age, as defined above.
Canada Child Benefit
In addition to deducting eligible child-care expenses, parents of children under the age of 18 can also apply to receive the Canada Child Benefit. These are monthly, non-taxable payments for an annual total, in most cases, of $6,833 per child under age 6 and $5,765 for those ages six through 17. The parental eligibility rules are similar to those for child-care expenses deduction.
Families with a combined net income of less than $32,028 receive the maximum amount. Payments are incrementally less for those with net income above that level. Parents of disabled children can receive a higher amount. Payment amounts and income thresholds are adjusted on July 1 each year.
For detailed information on the Canada Child Benefit, visit the CRA website.
Quebec has a similar parental assistance program entitled the Quebec Family Allowance, with somewhat different qualifications. Details are available on the Retraite Quebec website.
Adoption Expense Credit
Expenses incurred to adopt a child entitles a parent to a 15% non-refundable federal tax credit. The maximum amount that may be claimed for 2021 is $16,729 per adoption. Eligible costs include agency charges, legal expenses, travel, translation, and any fees charged by foreign countries or institutions. A claim can only be made on the tax return for the year in which the adoption is finalized, but you may also include expenses incurred in previous years that related to the adoption. Quebec provides a refundable tax credit for adoption expenses.
Post-Secondary Tuition
Fees paid for courses at a Canadian university, college or other post-secondary educational institution qualify for a non-refundable federal 15% tax credit (8% for Quebec tax purposes). This credit must first be claimed by the student; however, a parent can claim some or all of the amount of the credit that the student cannot use once their taxable income has been reduced to zero through the use of various credits and deductions. Tuition fees not used for the credit by the student may be transferred to a parent or grandparent (but this is limited to a maximum credit of $750). Alternatively, the student can carry forward the amount of any unused credits for use on one of their tax returns in a future year (such amounts cannot be claimed in a future year by a parent/grandparent).
Fees eligible for the federal tax credit include those for tuition, admission, library and laboratory use and supplies, compulsory computer-services fees, and charges for certificates or diplomas. Textbooks are not eligible unless they are included in a fee for a correspondence course. Note that textbook costs incurred prior to 2017 are eligible, assuming these have not yet been claimed on a previous tax return. While student association fees are not eligible for this credit, mandatory fees for such services as healthcare, athletics and other things may be claimed.
While secondary education tuition is not claimable, certain Advanced Placement programs – such as those offered as Grade 12 by some private schools in Quebec – may qualify.
Canada Training Credit
In addition, career training courses that qualify under the Canada Training Credit entitle students to a 15% federal refundable credit. To qualify for a 2021 tax credit, you must have been age 25 or over and under 65 at the end of 2020, with earnings during 2020 of at least $10,100 but not over $150, 473.
Fees paid for courses and exams for courses required to obtain a professional designation or to be licensed for a profession or trade can be claimed under this credit. For other requirements and restrictions, visit the CRA website.
Other Education-Related Credits and Exemptions
The following should also be considered by post-secondary students:
- Interest paid on student loans can be calmed as a tax credit if the loan was arranged under the Canada Student Loans Act or an equivalent program. Interest paid during the five preceding years can be claimed, and any amount of interest not claimed for the current year may be carried forward as an eligible credit for five years.
- Income received as a scholarship, bursary or fellowship is tax-free as long as it is in connection with a full-time qualifying program, and can also include a scholarship or bursary to attend a secondary or elementary school. Post-doctoral fellowships do not qualify.
- Students can access their registered retirement savings plan (RRSP) to help cover education costs under the Lifelong Learning Plan. Up to $10,000 per year can be withdrawn without penalty over four years, up to a maximum of $20,000. Amounts withdrawn must be repaid in equal instalments over 10 years, beginning approximately five years following the date of the initial withdrawal.
- Moving expenses can be deducted from income if the student is moving more than 40 kilometres to attend a post-secondary school as a full-time student (in Canada or elsewhere), or if they relocate to start a job (including a summer job) or to start a business.
