It’s tax time again and saving money on income tax comes back to the forefront. We wince at the thought of owing income tax at year end, and keep our fingers crossed for a mini windfall in the form of a refund, should we be so lucky.
When it comes to getting the most money back on your return it helps to be up to date on what’s available and what’s changing. Last fall, Canada’s Minister of Finance announced some tax changes affecting Canadian families with young children. Here is a quick summary on a few tax changes affecting families.
Child Tax Credit is being eliminated
The current child tax credit as we know it is being eliminated. The 2014 tax year will be your last year to claim this non-refundable child tax credit of $2,255 for children up to age 18. This child tax credit will be eliminated for the 2015 tax year going forward.
Enhanced Universal Child Care Benefit
The Enhanced Universal Child Care Benefit (UCCB) will pay $160/month for each child up until the age of six. This is an increase from the previous $100/month. Although the new benefits go into effect on January 1, 2015, in practice, you won’t receive your first cheque until July 2015, but payments will be retroactive to January for the full amount.
There is also a new element added to the Enhanced UCCB which will provide up to $60/month tax credit for each child from ages 6-17.
Family Tax Cut Tax Credit – (Family Income Splitting)
Effective for the 2014 tax year the government has introduced a new non-refundable tax credit up to $2,000. This tax credit is attained by income splitting between spouses. Seniors with pension incomes have been able to income split for some time now but young families have never had the opportunity. Couples with children can now split a portion of their income between them to lower their taxes up to the $2,000 maximum. This credit will enable one spouse earning a higher income in a high income tax bracket to transfer a portion of their income (to a maximum of $50,000) to the other lower income spouse in a lower tax bracket. The overall effect is that a portion of the family income can now be eligible for a lower income tax bracket which means a tax reduction for the family. Families who will benefit from this tax credit the most will be families where one spouse has a high income and one has a low income.
Child Care Expense Deduction is increasing for 2015
Child care costs are ever rising and the child care expense deduction is being increased to reflect that. The actual amount you can deduct on your income tax return from the lower income spouse is dependent on the expenses you incur, two thirds of earned income, and the maximum for each category as follows:
$7,000 for each child under age 7 for 2014, and increased to $8,000 for 2015
$4,000 for each child between the ages of 7 and 15 for 2014, and increased to $5,000 for 2015
$10,000 for each child eligible for the Disability Tax Credit for 2014 and increased to $11,000 for 2015
Speak with your tax and financial advisor on how these tax changes can work for you.
Stephanie Farrow, B.A., CFP., Stephanie has over 20 years experience in the financial services industry, a diploma in Financial Planning from the Canadian Institute of Financial Planning, and Certified Financial Planner designation. Stephanie has been writing a financial planning column for the local business magazine Elgin This Month since 2010 and hosts our Farrow Financial Blog and Twitter @farrowfinancial. Stephanie and her husband Ken Farrow own Farrow Financial Services Inc., are busy raising three young children, and are actively involved in the community. About our Farrow Financial team.