Tax Season Odyssey 2024: Families

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Embark on Crowe Soberman’s Tax Season Odyssey, where valuable insights light your path for effective tax planning. This journey provides quick suggestions and actionable strategies to guide you through the complexities of taxation.

If you have young children

Apply for the Canada Child Benefit (CCB)

The 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 $619.75 ($7,437 annually) per child under the age of six, and up to $522.91 ($6,275 annually) per child aged six to 17.

The CCB is gradually reduced for families making over $34,863.

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 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.

Maximize child-care expense deduction

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

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

A RESP is a trust arrangement that earns tax-free income to fund the cost of a child or grandchild’s post-secondary education. Contributions to a 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 The beneficiary is taxed on the accumulated income portion when withdrawn from the RESP for the purpose of funding their post-secondary education.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, children tend to have relatively low sources of other income and the income is usually taxed at lower rates, or not at all, as a result.

For RESP contributions in 2024:

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 you have disabled or infirm dependents

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 a 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 10 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 when paid out of the RDSP for tax purposes. If the Canada Disability Savings Grant and bond has been in the RDSP account for fewer than 10 years, all or part of the grants must be repaid.
There is no annual limit on amounts contributed to a RDSP of a particular beneficiary, but the overall lifetime limit is $200,000.
A deceased individual’s Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) can be transferred tax-free into the RDSP of a financially dependent infirm child or grandchild.

A non-refundable Home Accessibility Tax Credit (HATC) is also 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.

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. Like the CCB, the CDB is a tax-free monthly payment. The program provides parents with monthly benefits of up to $264.41 ($3,173 annually) for each child who is eligible. The CDB is gradually reduced for families making over $75,537.

Tax Season Odyssey 2024 - Families - Did you know

Canada Caregiver Credit

The Infirm Dependent tax credit, the Caregiver tax credit and the Family Caregiver tax credit have been replaced by a new 15 per cent non-refundable Canada Caregiver Credit (CCC). The amount for which the CCC is calculated is $7,999 for 2024 and may be claimed for the care of an infirm dependent relative. The credit amount is phased out when the net income of a dependent exceeds $18,783 for 2024.

Ontario Childcare Access and Relief from Expenses Credit

The province of Ontario’s Ontario Childcare Access and Relief from Expenses (CARE) tax credit is available 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 Childcare 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.

Medical Expense Credit

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 $2,635 or 3 per cent of the parent’s net income for 2023.

The medical expense tax credit includes surrogacy and other related expenses which can be claimed either by an individual or their spouse.

Tax on Split Income (TOSI)

The TOSI rules 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.

Income splitting with family members - additional opportunities

Consider the following acceptable ways of shifting income to family members whose taxable income is below the lowest tax bracket, $49,231 in 2023, and $51,446 in 2024. 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

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 five per cent (six per cent effective Jan 1, 2024) 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. 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

Provide financial assistance to your spouse or common-law partner to generate business income. Keep in mind that this arrangement is exempt from the income tax attribution rules.
Opt for the higher-earning spouse or common-law partner to cover all household expenses, enabling the individual with lower income to invest at potentially lower tax rates.
Offer a loan to your spouse or common-law partner with interest payable at the prescribed rate, which is currently five per cent, and six per cent effective Jan 1, 2024. 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 applying TOSI. 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.

File and pay your taxes on time

Ensure that you file your taxes promptly, even if you anticipate receiving a refund. Filing on time avoids the possibility of late-filing penalties that may be applicable on CRA reassessments.
The deadline for filing your 2023 personal tax return is Tuesday, April 30, 2024. If you or your spouse or common-law partner are self-employed, the deadline for filing your tax return for 2023 is extended to June 17, 2024. Regardless of your filing due date, if you have a tax balance owing for 2023, you still must pay the balance due on or before April 30, 2024.
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.

Top 3 Tax Strategies for Families

Take advantage of a RESP account to save for your child or grandchild’s post-secondary education.
Ensure that you are claiming deductions and credits that you are entitled to, such as the child-care expense deduction or medical expense tax credit, on your 2023 personal income tax return.
Be aware of the TOSI rules when splitting income, as the implications of TOSI can be punitive.

This article has been prepared for the general information of our clients. Please note that this publication should not be considered a substitute for personalized advice related to your situation.

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