This article was provided by the Tax Professionals at H&R Block
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There are lots of questions when it comes to taxes, especially for families and first time parents. Every year, H&R Block tax pros answer thousands of questions online. Here are some frequently asked questions from parents and how they can make sure they do not miss a thing on their tax returns:
Q: I am on maternity leave with my third child. I have kept my three-year-old in daycare because if I took her out I would never get her back in. Am I still able to claim the child care expense on my taxes?
A: Congratulations on your new baby. The Tax Court of Canada has allowed taxpayers to claim child care expenses incurred during maternity leave in situations where she could demonstrate that it was necessary in order to retain the services of a suitable sitter. This appears to be the same situation as you are in. We would therefore suggest you make the claim on the basis of these decisions (D’Amours v. The Queen 90 DTC 1824 & McLelan v. The Queen 95 DTC 856).
Q: What is the earliest date I can submit my taxes?
A: Employers are obliged to provide you with your T4 by February 29, 2012. We recommend waiting until you have received all your slips before filing. If you have all of your information to complete your tax return, the Canada Revenue Agency will accept your return as early as January, however, they will not begin processing tax returns until late January or early February. The CRA begins accepting 2011 returns electronically by mid February.
The 2011 forms are available on the Canada Revenue Agency site at http://www.cra-arc.gc.ca/formspubs/t1gnrl/llyrs-eng.html. Paper forms will come out a few weeks later and they are usually in the post offices by mid-February. For tax software users, the CRA electronic filing system opens on February 13, 2012. The CRA will accept 2011 returns at any time now but they do not begin processing them until mid-February. The first cycle of 2011 refunds will be sent around February 23 or 25. All the returns filed earlier than mid-February are stock piled until processing begins mid-February. So filing in January won’t necessarily get your tax return back from the CRA any faster than filing mid-February.
Q: Can my husband partly claim me as dependant since I was unemployed for part of the year?
A: Whether or not your husband can claim you depends on the amount of income you earned during the year. If it was under the $10,527 basic personal amount for 2011, then yes he can. If it was over, he cannot claim you.
Q: I am a self-employed home daycare operator. What expenses can I claim? What paperwork/receipts should I have ready when I file?
A: As a home business, there are a number of expenses you can claim on your T2125 Statement of Business Income (http://www.cra-arc.gc.ca/E/pbg/tf/t2125/README.html) but it’s important to keep detailed records.
Some expenses that are 100% business related are fully deductible from your income. In the case of a daycare this could include hygienic supplies, toys, art and craft supplies, additional liability insurance and wages.
Larger items such as furniture specially bought for the business, computer or outside playground equipment would be considered capital expenses. These can be depreciated and a portion of the cost claimed each year. You would need to consult the CRA’s Capital Cost Allowance rates to determine what you could claim.
You should keep track of the meals and snacks that you provide to the children and the approximate costs such as $1.00 per child per snack and $2.00 per meal. Receipts would help you to determine what is reasonable in your case. These expenses would be 100% deductible. I would recommend you purchase food for your daycare separately so it is easier to track the receipts.
Since you are using your home for your childcare business, there are home expenses you can claim such as utilities, property taxes, insurance and mortgage interest. However, the amount you can claim will depend on how much of your home you use for your business. Your house is your place of business AND your personal home so all those expenses must be prorated. For example, if you have children in your home from 7 AM to 5 PM for 5 days a week, they have access to 75% of the house and you take July off for holidays, this would be your calculation:
10hrs/24hrs X 240days/365days X 75/100 = 20.54% of your total expenses that relate to the business.
Q: I have been separated from my husband for over three years. I receive the Child Tax Benefit payments even though we share custody. Can my ex-husband claim one of the children as an equivalent to spouse/eligible dependant and can I claim the other? Will this affect by Child Tax Benefit payments as long as I claim Line 367 for all the children?
A: If you share custody of the children and you are not paying child support to each other, you can each claim the Amount for Eligible Dependant (AED) for one of the children. However, if you share custody of the children, you should have applied to have the Child Tax Benefit split between both of you. This rule came into effect last July. If you have not done this, the Canada Revenue Agency may question whether the father is in fact eligible to claim the AED. If the father does claim the AED for one of the children, he must also claim the child amount on Line 367 for that child.
Q: My wife is going back to work and we are thinking about hiring a nanny. I understand the nanny would be an employee and I would be responsible for CPP, EI and tax remittances. Would we need to submit a business return? Could we submit other expenses for the nanny other than childcare amounts?
A: You don’t need to file a business return if you employ a nanny. However, this means you cannot deduct expenses. You just need to file a T4 return to record your nanny’s income and deductions with the Canada Revenue Agency. You can find more details here http://www.cra-arc.gc.ca/esrvc-srvce/rf/t4/menu-eng.html.
The only way you could deduct expenses (aside from the regular childcare deductions) is if your nanny is renting space in your home. Then you could use rental expenses to offset the rental income earned from renting space to your nanny.
Q: How long must a child live with a parent to be able to claim the child as a dependant? My 15-year-old son has been living with me since June last year.
A: You would be eligible to claim your son if for any time in the year your supported him. However, if he lived with both parents in the year, a decision has to be made who will claim the dependant. Both parents cannot make the same claim, and you cannot claim for only a portion of the year.
Q: My 12-year-old daughter had a regular babysitting job for a neighbour after school. Now they are asking for a receipt for the babysitting. My daughter does not have a SIN. Is there any problem with giving them a receipt?
A: Taxpayers who want to claim child care expenses can only do so if the child care provider provides them with a receipt. Where the child care provider is an individual, the receipt must contain his or her social insurance number.
Your daughter is not legally obliged to get a SIN unless she’s earning more than the basic personal amount, in which case she would have to file an income tax return. However, there is no reason why she would not want to apply for one in order to keep her clients happy. It would also make sense for her to file a tax return since it would build up her RRSP contribution room for future years. The basic personal exemption is $10,527 so as long as she made less than this she wouldn’t have to pay any tax.
This web site explains how she can go about getting a SIN number quickly and easily: http://www.servicecanada.gc.ca/eng/sin/apply/how.shtml
Q: My parents are dependants as I support them financially via cash transfers through Western Union. Can I claim this support on my tax return?
A: To claim your parents as your dependants, they must be living with you and have a limited income. If you are sending money to support them elsewhere, there is no deduction available.
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