Children's Fitness Tax Credit

[msj]

The CPC brought in the CFTC in their 2006 budget for the 2007 year.

Essentially, it is meant to provide a tax credit up to 15% of $500 of eligible fitness expenditures which means it is worth about $75 per kid (under 16) [with some slightly more generous rules for disabled children].

It is interesting how this fitness tax credit is working in practice - the rules are that these expenses must first be used as child care expenses to the extent that they qualify and then any unused amount may be claimed as part of the CFTC.

This has the effect of relegating the CFTC to the tax return of the spouse with the lower income.

Fine, after all, that's what happens to child care expenses (with exceptions).

But here's the rub: if you have a stay at home spouse who is only non-taxable because he/she is only earning, say, the universal child care benefit, then the tax credit is being claimed on that spouse's return.

What this means is that the CFTC is not being used because it is going onto the tax return of a person who is already non-taxable by virtue of the basic tax exemption. So, the couple is not saving any taxes from it.

Remind me again how this tax credit is helpful?

It is helpful if both spouses are taxable so that one or the other will get to realize the tax savings.

But for the couple with a stay at home spouse who has minimal earnings it appears to be lost.

When I first noticed this I thought it was an error in my tax program (Greenpoint Profile). Our firm tends to do mostly older people with grown children so it's not like I will see too many of these things.

After reading about it at the CRA it appears to work like above which would plainly be ridiculous.

So, for Pat Coghlan, what's your experience with this? I think you have lots of kids and a stay at home spouse.

Is this tax credit as useless as it appears to be above?

Maybe this is just a glitch in the implementation and will be fixed later (and, hopefully, be applied retroactively)?

Edited to add this tax summary snap shot for a hypothetical case:

CFTC Summary Snapshot

Edited March 16, 2008 by msj

[Pat Coghlan]

So, for Pat Coghlan, what's your experience with this? I think you have lots of kids and a stay at home spouse.

Is this tax credit as useless as it appears to be above?

Maybe this is just a glitch in the implementation and will be fixed later (and, hopefully, be applied retroactively)?

Edited to add this tax summary snap shot for a hypothetical case:

CFTC Summary Snapshot

Actually, my wife works part time now, but I think you're correct that SIFs (single income families) probably lose out.

The reason: it is a non-refundable tax credit. It can be subtracted from taxes owing, but you won't get money refunded to you if you don't owe income tax.

I noticed that Ufile put all the non-refundable tax credits (fitness, adult child etc.) on my return, but that's only because my wife also paid more than enough taxes to offset these non-refundable credits.

Here's a quick summary of non-refundable tax credits in Canada for the 2007 tax year: http://www.kpmg.ca/en/services/tax/documen...Credits2007.pdf

Edited March 17, 2008 by Pat Coghlan

[msj]

Actually, my wife works part time now, but I think you're correct that SIFs (single income families) probably lose out.

The reason: it is a non-refundable tax credit. It can be subtracted from taxes owing, but you won't get money refunded to you if you don't owe income tax.

I noticed that Ufile put all the non-refundable tax credits (fitness, adult child etc.) on my return, but that's only because my wife also paid more than enough taxes to offset these non-refundable credits.

Here's a quick summary of non-refundable tax credits in Canada for the 2007 tax year: http://www.kpmg.ca/en/services/tax/documen...Credits2007.pdf

I would be interested to know if Ufile would have put the fitness tax credit on your return if your wife was non-taxable. I suspect that it would have gone onto her return and you would have lost the benefit.

This tax credit is getting more and more useless if we are going to end up with a bunch of people not being able to claim it for the reasons outlined in my post above.

[Pat Coghlan]

I would be interested to know if Ufile would have put the fitness tax credit on your return if your wife was non-taxable. I suspect that it would have gone onto her return and you would have lost the benefit.

This tax credit is getting more and more useless if we are going to end up with a bunch of people not being able to claim it for the reasons outlined in my post above.

Note (l) in the KPMG link says that the child tax credit may be transferred between spouses. Note (u) does not say the same re: fitness credit.

Good discussion though. It made me realize that the $8,000 credit I received was not for my oldest who is in university but, rather, the $2,000/child tax credit for my other 4 children. The line item description in Ufile may have been incorrect (or I read it incorrectly).

It also prompted me to fill out fed/prov TD1 returns to get my tax at source reduced for the child tax credit and transferred tuition amounts and I sent them to our payroll people. No point waiting until April 2009 to get my $1,200. I wasn't even aware that we were eligible for the child tax credit.

[msj]

Note (l) in the KPMG link says that the child tax credit may be transferred between spouses. Note (u) does not say the same re: fitness credit.

I'm surprised you're not bothered by this.

It seems quite ridiculous to me - to give the two earner family the tax break while not allowing the single earning family a break.

Sure, it's small but still....

[Pat Coghlan]

I'm surprised you're not bothered by this.

It seems quite ridiculous to me - to give the two earner family the tax break while not allowing the single earning family a break.

Sure, it's small but still....

I was. If you look at my post you'll see that it was edited...several times.

I was "less" bothered when I saw that the child tax credit could be transferred to either spouse. Initially, I thought "geez, if my wife didn't have taxable income we would not get the $1,216", but it now appears that we would. Not sure about the sports credit though.

The whole system needs to be simplified and reformed. I just heard from a friend who, after being laid off, incorporated and works as a consultant. He's paying his 14 year-old son $5,000/year to shovel the driveway and do dishes - business expenses for the office (his home)! This guy's a newbie at the incorporated thing, so imagine what tricks the veterans get to play out there.

I recently wrote a letter to Flaherty suggesting that, if you're going go force everyone to file as individuals, then they should allow spouses to also file for 50% of available benefits bases on their individual - vs family - income.

I'm interested to see the response, as there's really no way to justify forcing spouses to pool their income only for benefits.

[msj]

I was. If you look at my post you'll see that it was edited...several times.

I was "less" bothered when I saw that the child tax credit could be transferred to either spouse. Initially, I thought "geez, if my wife didn't have taxable income we would not get the $1,216", but it now appears that we would. Not sure about the sports credit though.

The whole system needs to be simplified and reformed. I just heard from a friend who, after being laid off, incorporated and works as a consultant. He's paying his 14 year-old son $5,000/year to shovel the driveway and do dishes - business expenses for the office (his home)! This guy's a newbie at the incorporated thing, so imagine what tricks the veterans get to play out there.

I recently wrote a letter to Flaherty suggesting that, if you're going go force everyone to file as individuals, then they should allow spouses to also file for 50% of available benefits bases on their individual - vs family - income.

I'm interested to see the response, as there's really no way to justify forcing spouses to pool their income only for benefits.

1) Tell your friend to find better reasons to pay his son $5,000 per year. Doing the dishes and shoveling the driveway would be considered personal in nature and would not justify the deduction to the company.

2) I think the system is much worse now under the CPC then it was under the Liberals. It is more complicated then ever before.

3) The pension splitting is really starting to make me angry. I have seen dozens of seniors get tax cuts anywhere from a paltry $30 up to over $6,000 thanks to pension splitting.

Why? Because they happen to have a certain kind of income and happen to be a certain age that allows them to split that income.

If the fogies are going to get income splitting then we all should be getting it.

[Pat Coghlan]

1) Tell your friend to find better reasons to pay his son $5,000 per year. Doing the dishes and shoveling the driveway would be considered personal in nature and would not justify the deduction to the company.

2) I think the system is much worse now under the CPC then it was under the Liberals. It is more complicated then ever before.

3) The pension splitting is really starting to make me angry. I have seen dozens of seniors get tax cuts anywhere from a paltry $30 up to over $6,000 thanks to pension splitting.

Why? Because they happen to have a certain kind of income and happen to be a certain age that allows them to split that income.

If the fogies are going to get income splitting then we all should be getting it.

AMEN brother!!!

Professional people do it (see info re: my friend above). Families with a luck-of-the-draw resulting in both spouses earning similar incomes do it. Pensioners do it (now). Only families in which each spouse earn dissimilar incomes are left out.

The government should either tie incomes together for tax purposes (i.e. not just benefits) or completely sever the income relationship between spouses and allow each spouse to apply for 50% of available benefits based only on his/her income.

I always figured that seniors would be the first to push for income splitting once all those former DIFs realized they only had one decent pension income. That's why I participated in the CAPS lobbying effort (www.pensionsplitting.ca). The genie is out of the bottle now. Why limit the leveling of the income tax playing field ONLY for pension recipients.

Solution: replace pension splitting with a joint tax return. All families with SAME INCOME will pay SAME TAXES.

It sounds so simple when you hear someone else say it :-)