Four-in-ten Canadian families with children under the age of 12 are not taking full advantage of tax savings, a recent RBC survey suggests, and advisors can help educate them on their options.
A recent RBC Tax Planning Poll, conducted by Ipsos Reid, surveyed more than 500 Canadian families with children 12 years old and younger. Of the respondents, 42% were not taking full advantage of the tax credits available to them, including 17% who were unaware of the options available to them.
Some of these include:
• Child care deductions: Child care expenses, such as daycare, nannies, summer camp and before and after-school programs are eligible for a deduction against income. The claim amount is actual cost of expenses, up to a specific dollar amount, and is claimed by the parent with the lowest taxable income.
• Child Amount Tax Credit: This credit allows parents to claim a tax credit on their income tax return based on an amount of $2,089 for each child under the age of 18. This can also be applied against tax deducted at source by a parent’s employer.
• Children’s Fitness Amount Tax Credit: This credit entitles parents to claim up to $500 per child to cover costs of enrollment in a qualifying fitness program. To claim the credit on a 2009 tax return, payments must have been made on or before Dec. 31, 2009.
The RBC poll also found that 56% of young families are currently saving for their child’s post-secondary education. Of the 44% who are not currently saving, 9% feel they won’t need to, while a hefty 84% said that they would like to, but are unable due to their current financial situation.
Young parents may be unaware of the federal government grant that they could receive with an RESP. The Canada Education Savings Grant matches contributions by 20% up to an annual maximum of $500, or $7,200 over the life of a plan. Upon withdrawal, the income is taxed in the child’s hands, so there should be little or no tax payable given that the child will be in a lower tax bracket.
Additional federal grants are available for lower-income families and Alberta and Quebec also offer provincially-based savings incentives to boost education savings.