As a parent, having a new baby is one of the most exciting periods in your life. It can also be stressful, which might explain why taxes are not something you think about on a daily basis. But it’s important to keep up to date on the latest tax credits and tax deductions provided by the Canada Revenue Agency (CRA). Understanding what is available can really help boost your family budget.
Below are some important things you should be aware of, and a list of tax credits and tax deductions that can help your family.
Eligibility Requirements for Maternity and Parental Tax Benefits
Parents on parental leave are eligible for monthly benefits that can help support them financially while they’re away from work.
To be eligible for Employment Insurance (EI), maternity, and parental benefits, you must meet the following criteria.
- You are pregnant or have recently given birth when requesting maternity benefits
- Are a parent caring for a newborn or newly adopted child
- Your regular weekly earnings have decreased by more than 40% for at least one week.
- You have accumulated at least 600 insured hours of work in the 52-week period before, or since, the start of a claim, or since the start of your last claim, whichever is shorter.
If you’re self employed, new parents need to be registered with the EI program for at least 12 months before their application. You must also have paid EI premiums for a certain period of time.
Whether you’re self-employed or working for a company, maternity benefits can start as early as 12 weeks before the due date or when the baby is born. Parental benefits are handled differently. You can start receiving them within a certain period of time after the child is born or adopted. Standard parental benefits, which is 12 weeks, account for 55% of your average insurable weekly earnings, up to a maximum of $573 in 2020.
Extended parental benefits (18 weeks) account for 33% of your average insurable weekly earnings. In 2020, the maximum amount was $344.
How to Apply for the Benefits
The Government of Canada provides a calculator that estimates how much you will receive in maternity and parental benefits. Or, if you want to figure it out on your own, follow this formula:
- Add your insurable weekly earnings from the weeks where you earned the most money. You can find that information on your Record of Employment.
- Divide that amount by the number of best weeks based on where you live. It could be between 14 and 22 weeks.
- Multiply the result by 55% for standard parental and maternity benefits; 33% for extended parental benefits, or 75% if you’re part of the Quebec Parental Insurance Plan.
- That number is the estimated benefits you will receive on your leave.
If your total family income is less than $25,921, you may be eligible for the family supplement.
What Tax Credits Can New Parents Claim?
There are a number of different tax credits and deduction new parents can take advantage of. Below are some of the most popular.
Canada Child Benefit
In 2016, the Government of Canada introduced the Canada Child Benefit (CCB). It replaced three existing benefits: The Child Tax Benefit, The Universal Child Care Benefit, and The Family Tax Cut.
This tax-free monthly payment is made to eligible families to help them with the costs of raising children under the age of 18. You could get up to $6,400 per year for each eligible child under six years of age and up to $5,400 for each eligible child from six to 17 years old.
In order to qualify though, you and your spouse must file your taxes every year, since the CRA uses this information to calculate how much you qualify for.
Child Care Expenses
If you and your partner are required to pay for childcare (including day camps, boarding schools, overnight sports schools, or camps where lodging is provided) so that you can either run a business, go back to work, go to school, or do research for which a grant was issued, you can claim those expenses on your income tax. Just make sure you get a receipt.
You can claim the lower of:
- 33% of your earned income.
- The actual amount you paid for childcare.
The maximum amount you can claim per child annually is:
- $8,000 for children under age seven
- $5,000 for other eligible children
- $11,000 for children who qualify for the disability tax credit
Adoption Expense Tax Credit
If you adopted a child under the age of 18, you can claim eligible expenses related to adopting the child. The expenses must have been incurred during the tax year in which the adoption period took place.
The maximum amount you can claim in 2020 is $15,905 per child, in 2021 the amount was raised to $16,729. The amount is indexed to inflation.
Some of the eligible adoption expenses include:
- Fees paid to an adoption agency licensed by a provincial or territorial government
- Court costs and legal and administrative expenses related to an adoption order for the child
- Reasonable and necessary travel and living expenses of the child and the adoptive parents
- Mandatory fees paid to a foreign institution
- Mandatory expenses paid for the child’s immigration
- Other reasonable expenses related to the adoption required by a provincial or territorial government
- Other reasonable expenses related to the adoption required by an adoption agency licensed by a provincial or territorial government
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