If you have kids, you’d better not miss these year-end tax tips
With just over three weeks to go before Dec. 31, let’s take a look at some year-end tax tips that may come in handy if you’ve got kids.
Registered Education Savings Plans
RESPs allow for tax-efficient savings for (grand)children’s post-secondary education. The federal government provides a Canada Education Savings Grant (CESG) equal to 20 per cent of the first $2,500 of annual RESP contributions per child, or $500 annually, up to a lifetime maximum of $7,200 (per child). Unused CESG room starts building automatically from the year the child is born and is carried forward to the year she turns 17. The maximum CESG that can be received annually, however, is capped at $1,000. If enhanced catch-up contributions of $5,000 (i.e. $2,500 x 2) are made for just over 7 years, the maximum total CESGs of $7,200 can be obtained.
Because of this rule, if you have a (grand)child who turned 10 (or older) in 2015 who is not yet a beneficiary of an RESP, you should consider making a contribution by Dec. 31 so you don’t permanently lose out on the opportunity for up to $7,200 in maximum CESGs.
Another rule states that if your child turned 15 this year and doesn’t yet have an RESP, no CESGs can be claimed in future years unless at least $2,000 is contributed to an RESP by the end of the year they turn 15. As a result, you might want to consider making your contribution by Dec. 31 to receive not only the current year’s CESG, but also create CESG eligibility for 2016 and 2017.
If your (grand)child is an RESP beneficiary and already attending post-secondary education in 2015, consider having educational assistance payments (EAPs), which are taxed in the child’s name, made from the RESP before the end of the year. This would allow the student to use his or her basic personal amount ($11,327 federally) which might otherwise be permanently wasted if the student didn’t have at least that much income in 2015.
Certain expenses must be paid by year’s end to claim a tax deduction or credit in 2015. This includes child-care expenses, interest on student loans and medical expenses. But what you may not know is that the related good or service does not always need to be acquired in the same year. This provides an opportunity to prepay certain items and claim the tax benefit now.
For example, a tax credit can be claimed when total medical expenses exceed the lower of three per cent of your net income or $2,208 in 2015. If your family’s medical expenses will be less than this minimum threshold, consider prepaying expenses that you would otherwise pay in 2016. For example, if you expect to pay monthly instalments for your child’s braces in 2016, consider paying the full amount up front in 2015 if it will raise total medical expenses over the threshold.
Prepayments can also be used for expenses that qualify for the non-refundable children’s arts credit, based on up to $500 of qualifying expenses, and the children’s fitness tax credit, which, as of 2015, is based on up to $1,000 of qualifying expenses and is refundable. For example, if you plan to enroll your child in swimming or guitar programs for 2016, you can claim the credit(s) in 2015 if you pay for the activities by Dec. 31.