Come tax season, we all start looking for ways to minimize our income by maximizing our deductions. Are you using all of yours? With the cost of raising a child in Canada coming in between $10,000 and $15,000 each year between all the sports and recreational activities, school, orthodontics, and general upkeep, getting a little money back would be a good thing. Happily, there are ways all those childcare expenses can save you money around tax time. It’s just about knowing where to look.
Be sure to claim child care expenses on your tax return.
If your child attends daycare, nursery school, summer camp, boarding school, or even has in-home childcare like a nanny, you’ll want to take advantage of the childcare expense deduction on your tax return. You can claim up to $8,000 for children under 7 years old and up to $5,000 for children 7 to 16 years of age. Keep track of your receipts to use at tax time.
Take full advantage of the Canada Child Benefit when calculating your taxes.
This tax-free monthly government payment is to help cover the costs of raising a child under the age of 18. The Canada Child Benefit payment is based on the number of children you have, their ages, where you live in and your family’s net income. To ensure you receive the maximize, claim the most allowable deductions to help minimize your income on your tax return. This calculator shows how much you can expect to receive.
Claim all your child’s eligible medical expenses on your tax return.
Children can need braces and eyeglasses, medication, and vaccines. And these costs can add up. If medical expenses aren’t covered by work or private insurance plans, you may be eligible to claim them on your tax return. These expenses must exceed the current level defined by the Canada Revenue Agency or 3% of your net income. Consult the full list of eligible expenses to see what you might be able to claim.
Use your tax refund as an RESP contribution towards your child’s post-secondary education.
The average university graduate finishes school with $26,000 in student debt. With a little advance planning, you can use an RESP to help your student avoid accruing that kind of debt. CST Consultants has RESPs that make saving for post-secondary education easy; we work with you to tailor your RESP to your goals and budget. If you’re lucky enough to be getting a tax refund, an RESP is a great place to put it. While contributions to your child’s RESP aren’t tax-deductible and you are contributing using after-tax dollars, all income earned within your plan grows tax-free. Factor in the government grants and the magic of compounding, and you could potentially have a nice sum growing tax-free for you. Not only that, when it’s time to withdraw those funds, the principal is returned to you tax-free and the education assistance payments from the plan are taxable in your child’s name, not yours. Since students tend to have little or no annual income, little or no tax is payable.
Come tax season, it makes sense to maximize all your child-related deductions. Then, by investing your tax refund wisely into an RESP, you can also get your money growing tax-free. Just think: by spending all that money on your kids, you could actually be saving some too!
Canadian Scholarship Trust Plans are only sold by Prospectus.
The contents are provided for informational and educational purposes and are not intended to provide specific individual tax advice. Please consult with a tax professional about your particular circumstances.