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Tax Changes affecting families for 2014 and beyond

This is a summary of some changes that may affect you:

Family Tax Cut – There is a new credit allowing couples with children younger than 18 to income split
Child Care Expense Deduction – Maximum dollar limit increase of $1,000
Universal Child Care Benefit – Increasing by $60 dollars per month and extending to children up to 17
Fitness Tax Credit – Dollar limit doubling to $1,000 and credit will become refundable

The new Family Tax Cut Credit

Effective for the 2014 and subsequent taxation years, the Government of Canada has implemented a new non-refundable tax credit worth up to $2,000. Spouses with taxable incomes in different federal marginal tax brackets and who have children younger than age of 18 may claim this credit.

How it works

Since marginal tax rates increase as the level of taxable income increases, a couple with one high income earning spouse will typically pay more tax than a couple earning the same amount of income combined. For example, a couple in which one spouse earns $100,000 will pay more federal income tax ($19,407) than a couple in which both spouses earn $50,000 each ($15,846).

The new Family Tax Cut credit allows couples to shift up to $50,000 of taxable income from a higher earning spouse to a lower earning spouse. The amount of the credit is equal to the difference in federal taxes payable before and after the hypothetical transfer of income. The credit is capped at $2,000 and either spouse may claim the credit.

Child Care Expense Deduction limit increase

The Child Care Expense Deduction allows parents to claim a deduction for child care expenses. This amount must be claimed by the lower-income spouse (typically) and is limited to the lesser of:

  • Total actual amount spent on eligible child care expenses (unchanged)
  • Two-thirds of the lower-income spouse’s earned income (unchanged)
  • Maximum dollar limit of the deduction

Effective for the 2015 and subsequent taxations years, the maximum dollar limit has been increased as follows:

  • Children up to age 6 – $8,000 (previously $7,000)
  • Children aged 7-16 and infirm dependent children over 16 – $5,000 (previously $4,000)
  • Children who are eligible for the Disability Tax Credit regardless of age – $11,000 (previously $10,000)

Universal Child Care Benefit enhancement & repealed Child Tax Credit

Currently, the Universal Child Care Benefit (UCCB) provides families with children below the age of 6 with $100 per month. The Government is proposing an enhancement to the UCCB which would provide families with children below the age of 6 with $160 per month and families with children aged 6-17 with $60 per month. Therefore under this new proposal, families would receive $1,920 annually for each child below the age of 6 and $720 annually for each child aged 6-17. The UCCB payments will remain taxable to the parent with the lower net income.

The enhanced UCCB will replace the Child Tax Credit which provides parents with a non-refundable tax credit (worth $338 per child as of the 2014 taxation year) effective for the 2015 and subsequent taxation years.

Timing of changes

The enhanced UCCB is effective January 1, 2015. Until the proposal receives Royal Assent however, the current payment structure will remain in effect. Families would receive the enhanced payment beginning July 2015. There will be a catch-up payment in July 2015 for the enhanced UCCB covering January 2015 to June 2015.

How to apply

Families who currently receive or have previously received the UCCB in respect of their child do not need to reapply for the enhanced benefits. Those not currently receiving nor have previously received the UCCB in respect of their child would need to apply through CRA’s “My Account” or by mailing form RC66 Canada Child Benefits Application to their tax centre.

Fitness Tax Credit changes

Effective for the 2014 and subsequent taxation years, the Government of Canada has doubled the maximum Fitness Tax Credit from $500 to $1,000. Families with children 16 years of age or younger at the end of the tax year (or 18 for children who qualify for the disability amount) will receive a maximum benefit of $150 per child (up from $75).

In addition, effective for the 2015 and subsequent taxation years, the Fitness Tax Credit will become refundable to assist low income families who could not previously take advantage of this credit.

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