They say it takes a village to raise a child, so when you're trying to do it on your own, you're entitled to a little exasperation. But the government and the Canada Revenue Agency recognize the financial challenges of being a single parent, and the tax code has provisions that can make it a little easier. However, there are also some pitfalls that require attention to navigational detail to avoid.
For a parent with primary custody of a child, the biggest tax benefit is the amount for an eligible dependent credit, sometimes called the "equivalent to spouse" credit. One child under 18 can be claimed under the credit of up to $11,038, with the child's income, if any, subtracted from the credit. This results in a federal tax saving of a little more than $1,655, and the credits apply to provincial taxes, too. Saskatchewan and Alberta offer particularly high eligible dependent credits that can be applied against provincial tax owing. The provincial tax owing you'll save depends on both the provincial tax rate and the rate at which credits are applied, which varies from five per cent in Ontario and B.C. to 20 per cent in Quebec. Despite its value, this deduction is often overlooked by single parents.
If you're separated or divorced and have joint custody of more than one child, both you and your spouse can claim the eligible dependent credit.
There's a credit for every other child under 18 in the household, too. The federal credit for children under 18 (under 19 in Saskatchewan) is $2,234, this year, for a tax saving of about $335. Unfortunately, only the Yukon and Saskatchewan offer similar tax breaks; the former offers the same tax credit amount as the federal government, while Saskatchewan -- wow, they love their kids -- offers a credit of $5,782. Prince Edward Island and Nunavut offer a child amount for children under six years old.
Depending on your income, you might also qualify for monthly benefits under the Canada Child Tax Benefit (CCTB). It's a joint federal-provincial program, so rates vary from province to province. And the amount you receive declines with income over a threshold of about $43,000, until it's phased out entirely at about $115,000. Importantly, this amount is calculated based on your previous tax return -- if you didn't file, you don't get it.
Some of the most commonly overlooked tax benefits are those that involve children's activities, possibly because some were so recently introduced. According to a recent H&R Block/Leger survey, fewer than half of Canadians had noticed a change in their tax bill from changes made to the code in the last five years. Parents are entitled to a $500 credit for their kids' sporting activities under the Children's Fitness Credit, and the same amount under the Children's Arts Tax Credit. Depending on the province, there might be additional tax savings. Child care costs can also be claimed.
There are also a few pitfalls. Child support payments aren't taxable or deductible if the legal agreement was made after May 1, 1997, but the amounts still have to be reported by both parents. (Spousal support is considered income.) The CRA will occasionally, apparently randomly, demand proof that the children being claimed are living at the address and that you have primary custody. Birth certificates, letters from exes, notes from neighbours or schools, and other documentation may be required. It can be a pain, but it can save a reassessment that could cost you thousands in repaid benefits.
Changes in marital status can affect all of the above. If you get married or become a common-law spouse during the year, you should let the CRA know with an RC65 form. Because household income is higher, you won't be entitled to certain benefits, and you won't be able to claim the equivalent-to-spouse amount for a dependent child. The CRA's definition of common-law isn't the same as everyone else's; if you're living in a conjugal relationship for 12 months, you must let the CRA know the following month.
There's some attention to detail required, but there are plenty of benefits available to single parents come tax time.
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