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Managing Your Money
'Kid costs' tax write-offs
June 30, 2003
The warmth and love of family life is priceless, but raising kids is pricey - and getting costlier by the day. From birth to those final steps into adulthood, parents are under constant pressure to provide for clothing, food, education, entertainment, sports, music lessons and a host of other items and activities with costs that seem to grow faster than any child.
For working parents - or those attending school - the financial burden is even heavier. In addition to all the normal costs of childhood, working parents must come up with the extra cash to pay for such child care expenses as baby-sitting or day nursery services.
Fortunately, the tax folks at the Canada Customs and Revenue Agency (CCRA) have recognized that kids cost and allow working parents and students to deduct certain child care expenses from their tax returns, under certain conditions. Why bring this up now, when the 2003 tax deadline day is about nine months down the road? Because by doing a little planning and receipt-collecting along the way, you can ensure your child care claims are accepted by the CCRA, and you might even be able to deduct other 'kid costs' that you hadn't even thought of - like day camp or summer camp fees. It's all as easy as one, two, three … four:
1. Make sure you're eligible to claim child care expenses. Child care expenses are the amounts you or another supporting person paid to have someone look after an eligible child so you could earn an income, operate a business or attend school. In two-parent families, child care expenses are usually deducted by the spouse with the lower income. Single parents can deduct child care expenses from their own income. Common-law couples and same sex couples are treated the same as spouses for the purposes of calculating child care expenses. Child care expenses can also be deducted by single parents who are full-time students, and by two-parent families where both parents are also students. Part-time students receive a reduced child care deduction.
2. Know the child care expense limits that apply to your situation. For single and two-parent families, the deduction for child care expenses is limited to $7,000 for each child under seven at the end of the year, $4,000 for each child over seven and under 16, or two-thirds or your earned income. If you are entitled to claim a disability credit, your child care deduction is $10,000 for a child under 17.
For parents attending school full-time, child care expenses are deductible against all types of income to a maximum of $175 per week for each child under seven and $100 per week for each child aged seven to 16 - but only for each week that the parent(s) attended school full-time. Part-time students are limited to $175 per child under seven, and $100 per child aged seven to 16, for those months during which a part-time education credit is claimed.
3. Send your kid to camp and save? Yes, it's true - under certain circumstances, you may be able to claim child care expenses made to boarding schools, overnight sports schools, camps where lodging is involved and even day camps or day sports schools. These claims are subject to your overall limits, of course, and to other restrictions. For example, according to CCRA, an institution offering a 'sports study' program is not a sports school so does not qualify; neither can you claim fees for leisure or recreational activities, such as Cub Scouts or tennis lessons.
4. Keep track of your expenses and report all your kids. CCRA requires a receipt from each individual or organization that provided you with child care services. So be sure you have proper receipts for all amounts you claim or they could be denied. Also, be sure to report all children under 17 even if you didn't incur child care costs for some of them. You don't have to assign costs to each child, so reporting all your kids could increase the amount you're eligible to claim.
Raising a family is personally rewarding and fiscally challenging. Talk to your financial advisor about the many steps you can take to ease your financial burden and help reach the life goals you've set for you and your family.
This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.
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