Tax Planning for New Parents: Benefits and Credits You Should Know About
The addition of a new member to the family is a thrilling period characterized by happiness, affection, and, undoubtedly, a considerable amount of difficulties. One of the obstacles that parents have is managing the financial adjustments that come with having children, which includes comprehending the tax consequences. Canada provides a range of tax perks and deductions specifically intended to assist new parents. This blog article, provided by Tax Tree, will provide a comprehensive overview of the fundamental tax planning methods, advantages, and credits that all new parents should have knowledge of.
The Canada Child Benefit (CCB)
The Canada Child Benefit is a non-taxable monthly allowance provided to qualifying families to assist with the expenses associated with raising children who are under the age of 18. The amount you get is determined on your income level and the number of children under your supervision. It is crucial for new parents to prioritize application for the CCB, since it offers substantial financial assistance.
How to Apply
To get the Canada Child Benefit (CCB), you have the option to submit an application via the Canada Revenue Agency (CRA) when you register the birth of your infant. Alternatively, you may apply using the Automated Benefits Application or directly through your CRA My Account online.
Deduction for Child Care Expenses
Child care costs are an unavoidable aspect of parenting for most households. The Canada Revenue Agency (CRA) permits individuals to exclude child care expenses, including daycare, nannies, and preschool fees, from their income, resulting in significant tax reductions.
Eligibility
In order to be eligible, the costs must be made for the purpose of enabling you or your spouse/common-law partner to engage in employment, operate a company, pursue education, or conduct research.
Limits
The deduction is limited to the income of the lowest earner and is subject to yearly restrictions per kid, which depend on the child’s age and any impairments.
Benefits for Maternity and Parental Leave
The Employment Insurance (EI) program in Canada offers maternity and parental benefits to parents who take time from work to care for their newborn or recently adopted kid. Although these advantages are subject to taxation, strategically organizing your tax return to optimize deductions and credits may help mitigate a portion of the tax obligations.
Tax Withholding
It is advisable to request the government to increase the amount of tax withheld from your EI payments in order to prevent a substantial tax liability at the end of the year.
Enrolling in a Registered Education Savings Plan (RESP) Although your newborn’s college or university years may seem distant, it is never too early to begin saving for their future. Contributions made to a Registered Education Savings Plan (RESP) are not eligible for tax deductions. However, any income generated inside the plan is exempt from taxes until it is withdrawn.
The Canada Education Savings Grant (CESG) provides a matching contribution of up to 20% on the first $2,500 deposited each year into a Registered Education Savings Plan (RESP), with a maximum grant of $500 per child yearly.
Medical Expenses Tax Credit
First-time parents may encounter substantial medical or hospital costs. The Medical charges Tax Credit enables you to assert a fraction of these charges, including those that are not included in your health plan’s coverage.
Eligibility
You are eligible to claim medical expenditures for yourself, your spouse/common-law partner, and your children born in 2006 or later if the expenses surpass the lower amount between 3% of your net income or a predetermined threshold.
Disability Tax Credit (DTC) for Children with Disabilities
If you have a kid who has a significant and long-lasting limitation in physical or mental abilities, you may meet the criteria for the Disability Tax Credit. The DTC, or Disability Tax Credit, is a tax credit that cannot be refunded and is designed to decrease the amount of income tax that you may be obligated to pay.
To apply, a competent professional must complete Form T2201, which must then be approved by the CRA.
In conclusion
Parenting is a transformative experience that entails not only increased obligations but also fresh prospects for tax strategizing. By capitalizing on the advantages and allowances accessible to new parents in Canada, you may alleviate some of the monetary burdens associated with having a kid. At Tax Tree, we recognize the significance of efficient tax planning for households. We are here to assist you in understanding and manoeuvring through the tax system, as well as optimizing the financial assistance that you and your family are eligible for.
Do you want Personal & Corporation Tax Services or need help in bookkeeping & accounting Services? Visit Tax tree unit 613, 4789 Yonge St, Toronto ON M2N 0G3 or Call +1 (647) 236 8585. As a Quickbooks ProAdvisor, we provide accounting and bookkeeping services in Toronto.