Tax Tips 2023: Families

Save for your child or grandchild's education with a Registered Education Savings Plan (“RESP”) 

An RESP is a trust arrangement that earns tax-free income to be used to fund the cost of a child or grandchild’s post-secondary education. Contributions to an RESP are not deductible for tax purposes and withdrawals of capital from the RESP are not taxed. The beneficiary is taxed on the accumulated income portion when withdrawn from the RESP for the purpose of funding their post-secondary education. While at school, the child or grandchild tends to have relatively low sources of other income, and as a result, the income is usually taxed at lower rates (if at all).

For RESP contributions in 2023:

• There is no annual contribution limit;
• The lifetime contribution limit is $50,000 per beneficiary; and 

A federal Government grant of 20 per cent of annual RESP contributions is available for each beneficiary under the “Canada Education Savings Grant” (“CESG”). The maximum annual RESP contribution that qualifies for the federal Government grant is $2,500. 

If the beneficiary of the RESP decides not to attend post-secondary education, and you decide to withdraw the funds via accumulated income payments, you will be taxed on the accumulated income in the plan at your marginal tax rates at the time of withdrawal, plus an additional 20 per cent. Further, the CESG must be returned to the government. However, the capital contributed to the plan may be withdrawn tax-free. 

The CESG can be shared with a sibling who is attending post-secondary education if they have grant room in their RESP; otherwise, the grant must be returned to the government. 

You also have other options including, leaving the funds in the RESP for up to 36 years until your child decides to attend, replacing the beneficiary, or transferring the money to an RRSP or RDSP. To determine which option is most suitable in your situation, talk to your Crowe Soberman advisor. 

Maximize child-care expense deduction 

The maximum amounts deductible for child-care expenses are $11,000 for a disabled child, $8,000 for children under age seven, and $5,000 for other eligible children (generally, children aged 7-16). In most cases, the spouse with the lower net income must claim the child-care expenses against his or her earned income. 

Apply for the Canada Child Benefit (“CCB”) 

The Canada Child Benefit (“CCB”) is a tax-free payment based solely on the family’s income from the previous year. The program provides parents with monthly benefits of up to $583.08 ($6,997 annually) per child under the age of six and up to $491.91 ($5,903 annually) per child aged 6 to 17. 

The CCB is gradually clawed back for families making over $32,797 and fully eliminated for families making over $206,029 annually. 

Note that some provinces and territories offer additional assistance to help with the cost of raising a family. For example, the province of Ontario provides the Ontario child benefit (“OCB”). The OCB program provides parents with monthly benefits of up to $125.75 for each child under 18 years of age. The OCB is gradually clawed back for families making over $23,044. The OCB is administered by the CRA.  

The application for the CCB and OCB can be made online through the CRA “My Account” when you complete your child’s provincial birth registration form or by completing Form RC66, Canada Child Benefits Application. More information can be found here.  

The Registered Disability Savings Plan ("RDSP") is a savings plan that is intended to help parents and others save for the long-term financial security of a person who is eligible for the Disability Tax Credit. 

• Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59 years of age. 
• To help you save, the Government pays an annual matching grant of up to $3,500. You can carry forward unused grant entitlements for up to ten years. 
• Contributions that are withdrawn are not included in the income of the beneficiary, although the Canada disability savings grant, Canada disability savings bond, and investment income earned in the plan will be included in the beneficiary’s income for tax purposes when paid out of the RDSP. If the Canada disability savings grant and bond has been in the RDSP account for fewer than 10 years, then all or part of the grants must be repaid. 
• There is no annual limit on amounts contributed to an RDSP of a particular beneficiary, but the overall lifetime limit is $200,000. 
• A deceased individual’s RRSP or RRIF can be transferred tax-free into the RDSP of a financially dependent infirm child or grandchild. 

For 2016 and subsequent tax years, the Government implemented a non-refundable Home Accessibility Tax Credit. 

The tax credit is available for eligible expenses incurred in making a home more accessible to individuals aged 65 or older or to individuals who are disabled or infirm. 

Either the individual who incurred the expenses or the individual for whom the expenses are made can claim the tax credit. The individual who incurred the expenses can only claim the tax credit in respect of expenses incurred for his or her spouse or common-law partner, or for disabled or infirm dependants. 

For 2022 and subsequent tax years, you can claim up to $20,000 in eligible expenses under the Home Accessibility Tax Credit, resulting in a non-refundable tax credit worth up to $3,000. Expenses eligible for the claim must be permanent and non-routine renovations to the home. The alterations must allow the individual for whom the expenses were incurred to be mobile within the home and/or reduce the risk of harm to the individual within the home. 

In addition to the CCB (discussed above), you may be entitled to the Child Disability Benefit (“CDB”) if your child is eligible for the disability tax credit. If you are already getting the CCB for your child who is eligible for the disability tax credit, you will receive the CDB automatically. Similar to the CCB, the CDB is a tax-free monthly payment. The program provides parents with monthly benefits of up to $248.75 ($2,985 annually) for each child who is eligible for the disability tax credit. The CDB is gradually clawed back for families making over $71,060. 

You can claim an amount for eligible adoption expenses related to the adoption of a child who is under the age of 18.  The maximum claim is $17,131 per child for 2022 ($18,210 for 2023) and must be included in the tax return for the year that includes the end of the adoption period.

Ontario offers support to eligible residents participating in fertility treatments (all residents of Ontario with valid OHIP). The following treatments and eligibility requirements include: 

• Unlimited cycles of Intrauterine Insemination (IUI) and Artificial Insemination (AI) 
• One cycle of in-vitro fertilization (IVF) per patient per lifetime which includes one egg retrieval and embryo freezing and transfer of all viable embryos originating from the funded retrieval. An additional cycle is covered if you are acting as a surrogate. However, the additional eligibility requirement includes being under the age of 43. 
• Fertility preservation (FP) – One egg retrieval and/or one surgical sperm retrieval and freezing of one batch of egg and/or sperm sample. However, the additional eligibility requirement is that there must be a medical reason for the treatment which requires a doctor’s referral. 

In 2019, the province of Ontario introduced the Ontario Childcare Access and Relief From Expenses (CARE) tax credit for low- and moderate-income families that pay childcare expenses. CARE is a refundable tax credit that is only available to families with household income under $150,000. 

The CARE tax credit is in addition to the existing Child Care Expense Deduction. Families could receive up to $6,000 per child under the age of seven, up to $3,750 per child between the ages of seven and 16, and up to $8,250 per child with a severe disability. The province of Ontario has not yet announced whether these amounts will be increased for 2022. In prior years, the province of Ontario has also provided additional top-up payments. No details of 2022 top-up payments have been announced to date. 

For 2019 and subsequent taxation years, the Working Income Tax Benefit is replaced by the Canada Workers Benefit (“CWB”) which is a federal refundable tax credit. For 2022, the amount of the CWB is computed as 27 per cent of earned income over $3,000, to a maximum credit of $1,428 for single individuals without children and $2,461 for families (couples and single parents). 

The maximum credit is reduced by 15 per cent of adjusted net income over $23,495 for single individuals without children and $26,805 for families. 

For 2022, individuals who are eligible for the CWB and disability tax credit can receive a CWB supplement of up to $737. This credit is reduced by 15 per cent of adjusted net income over $33,018 for single individuals without dependents and $43,210 for families. However, the credit is only reduced by 7.5 per cent if both individuals in a couple are eligible for the supplement. 

In addition, in 2019, the government introduced an amendment to clarify that kinship care providers would be considered the parents of a child in their care for the purposes of the CWB. As a result, kinship care providers would be eligible for the higher CWB amount available for families, provided all other eligibility requirements are met. This applies retroactively to 2009 and subsequent years. 

Beginning in 2023, the payment of CWB amounts is proposed to be automatic instead of through application provided your 2022 tax return is received and assessed by the CRA prior to November 1, 2023. The advance payments would allow individuals to receive up to half of their anticipated CWB for a taxation year in the current taxation year. Advanced payments are proposed to be issued automatically starting in July 2023 for the 2023 tax year. 

You can claim a tax credit for eligible medical expenses paid for your dependent children if they were under 18 years of age at the end of the tax year, however, the total medical expenses for the family must exceed the lesser of $2,479 or 3 per cent of the parent’s net income for 2022 ($2,635 for 2023). 

For 2022 and subsequent years, the 2022 federal budget has proposed to expand the list of eligible medical expenses for the purposes of the medical expense tax credit to include surrogacy and other related expenses. Further, the 2022 Federal Budget proposed to expand who expenses may be claimed for, such that an individual or their spouse may be able to claim the medical expense tax credit in respect of a surrogate or donor. 

On January 1, 2018, the government introduced the TOSI rules which impact the ability to split income (generally applicable to dividends paid by private corporations and other types of investment income) with adult family members. If TOSI applies, the income is taxed in the hands of the recipient at the highest marginal tax rate, regardless of their income level. The TOSI rules aim to curtail the splitting of income with related family members who have not otherwise made a meaningful contribution to the business, be it labour, capital, and/or an assumption of business risks. The TOSI rules are complex. If the family member is over the age of 17 and is actively engaged in the business (i.e., works at least 20 hours per week) and is paid a dividend, income splitting may be achieved if all other eligibility criteria are met. Contact your Crowe Soberman advisor for more information on the application of the rules and potential exceptions. 

Consider the following acceptable ways of shifting income to family members whose taxable income is below the lowest tax bracket, approximately $46,226 in 2022, and $49,231 in 2023. This will allow them to take advantage of certain non-transferable credits as well as lower tax rates. 

Income splitting with children over the age of 17 (“adult children”) 

• Shift investment income by gifting money to your adult children or to a trust for their benefit, if you wish to maintain control.
• Lend funds (at the prescribed interest rate which is currently four per cent) to, or purchase shares in a corporation whose shareholders are, your adult children. 

Income splitting with adult or minor children 

• Purchase appreciating assets in the names of your children regardless of their ages. Capital gains will be taxed in their hands, not yours. 
• Lend money to your children with actual interest payable at the prescribed interest rate. However, note that earnings in excess of this rate will be taxed in their hands.
• Consider reorganizing the shareholdings of your private corporation to have your adult children (over the age of 24) own shares directly that give them 10 per cent of the votes and value (i.e., “excluded shares” for purposes of the TOSI rules). Dividends can be paid by the corporation on these shares to your adult children without TOSI applying. This planning is beneficial if your adult children are not otherwise active in the business and not already earning income at the highest marginal tax bracket. Note that this planning only works if the corporation earns business income, is not a professional corporation and is not in the business of provision of services. 

Income splitting with your spouse or common-law partner 

• Lend money to your spouse or common-law partner to earn business income. Note that this would be exempt from the income tax attribution rules. 
• Have the higher-income spouse or common-law partner incur all household expenses, thus allowing the lower income person to acquire investments, which could be taxed at a lower rate. 
• Lend money to your spouse or common-law partner with interest payable at the prescribed rate, which is currently four per cent. However, earnings in excess of this rate will be taxed in your spouse or common-law partner’s hands.  Note that the interest payable for the 2023 calendar year must be paid to the lending spouse on or before January 30, 2024. 
• Consider reorganizing the shareholdings of your private corporation to have your spouse (over the age of 24) own shares directly that gives them 10 per cent of the votes and value. Dividends can be paid by the corporation on these shares to your spouse without TOSI applying. This planning is beneficial if your spouse is not otherwise active in the business and not already earning income at the highest marginal tax bracket. Note, this planning only works if the corporation earns business income, is not a professional corporation and is not in the business of provision of services. 

Even if you are receiving a refund, you should file your taxes on time. Filing on time avoids the possibility of late-filing penalties that may be applicable on CRA reassessments. 

The deadline for filing your 2022 personal tax return is Monday, May 1, 2023. If you, or your spouse or common-law partner, are self- employed, the deadline for filing your tax return for 2022 is extended to June 15, 2023. Regardless of your filing due date, if you have a tax balance owing for 2022, you still must pay the balance due on or before May 1, 2023. 

The penalty for late filing your return is five per cent of the unpaid taxes, plus an additional one per cent for each complete month your return is late (up to 12 months). Penalties are higher for repeat offenders or gross negligence omissions.