As the end of the school year draws closer, and two months of summer holidays begin, families must start thinking about how to keep their kids supervised and busy throughout the summer months. Luckily, there is no shortage of options — at this time of year, advertisements for summer activities and summer camps abound — but nearly all the available options have one thing in common, and that is a price tag.
Some choices, like day camps provided by the local recreation authority, can be relatively inexpensive, while the cost of others, like summer-long residential camps or elite level sports or arts camps, can cost thousands of dollars.
In many cases, the cost of these activities or camps can be offset, to a degree, by claiming an associated tax deduction or tax credit. While the availability of a “subsidy” through the tax system should never be the sole determinant of what activity or camp is the best choice, there is no denying that being able to claim a deduction or credit, for the costs involved, can tip the balance toward one choice or another. It may even bring a formerly unavailable option within a family’s financial reach. In 2016, however, there are new considerations, as the tax rules which govern such deductions and credits have changed.
There are, essentially, two kinds of tax measures or programs which allow parents to claim a deduction or credit (depending on the program) for the cost of obtaining summer child care: the first is the general deduction provided for child care costs and the second is specialized credits which are available for costs incurred in relation to particular types of programs or activities. As might be expected, different eligibility criteria and claim amounts are provided for each.
The deduction with the fewest restrictions is the child care expense deduction. That deduction also offers the greatest potential for tax savings (especially for parents with higher income and therefore in higher tax brackets) as the amount of eligible child care expenses is claimed as a deduction from income rather than as a credit. Consequently, the taxable income of the parent claiming the deduction is reduced by the entire amount of expenses claimable. There are limits imposed on the maximum weekly cost of a residential camp (ranging from $125 to $275), as well as restrictions on the total amount of child care expenses which may be deducted in a year. However, those overall annual limits, which range from $5,000 to $11,000, depending on the age and health of the child, with an overall cap of two-thirds of the parent’s income for the year, are higher than those available under any other credit or deduction program available to help offset the cost of children’s activity programs. Two other such programs are also available.
Parents can claim the Children’s Fitness Tax Credit for activities or camps which involve a minimum degree of physical activity. Prior to 2016, parents were entitled to claim a refundable credit equal to 15% of the first $1,000 in qualifying costs per child per year. So, in other words, a camp which would have cost parents $800 per child will instead have a net cost of $680 ($800 – 15%, or $120), after the credit is claimed on the parent’s tax return for the year. For 2016, the maximum cost which can be claimed for purposes of the Children’s Fitness Tax Credit is $500 per year, regardless of the actual expenditure. Consequently, this year, where parents pay the same $800 for a camp, the refundable tax credit received will be 15% of only the first $500, or $75, leaving them with a net cost of $725.
Parents whose children’s interests run to less athletic pursuits like art, music, theatre, or writing can claim the Children’s Arts Tax Credit. The Arts Credit is very similar in structure to the Children’s Fitness Tax Credit, but has always been less generous in terms of amount. The changes made for 2016 continue that pattern. Formerly, the credit was a non-refundable 15% tax credit on up to $500 in eligible expenses per child per year. For 2016, the maximum amount claimable for purposes of the Children’s Arts Tax Credit has been reduced to $250. The credit continues to be non-refundable, meaning that it can reduce tax otherwise payable by the parent who claims it, but cannot create or increase a tax refund.
Claiming either the Arts or Fitness credit requires a minimum expenditure of $100 per child per year on qualifying activities.
Given the enormous range of activities available for children, it’s not surprising that the federal government has found it necessary to provide detailed rules on what types of activities will and won’t qualify for the two credits.
In assessing whether a particular camp or program might qualify for either of the two credits, the first thing to note is that both credits are available only in respect of fees paid for children who are under the age of 16 at the beginning of the year. In other words, the last year for which the credit can be claimed is the year in which the child turns 16, assuming that all other criteria are met. Those criteria are as follows:
- the program must last for a minimum of eight weeks or, in the case of children’s camps, must run for five consecutive days;
- the program or activity must be supervised; and
- the program or activity must be suitable for children.
The concept of “eligible activities” looms large in the determination of whether a particular cost may be claimed under either of the credits. For both credits, the rules provide a specific definition of eligible activities, and those definitions are outlined on the Canada Revenue Agency website.
Often, particularly in the case of residential camps or sports or arts camps, charges are levied for such costs as accommodation, travel, or food, or parents must incur costs to outfit the child with required equipment to use at camps. Costs paid by parents for non-activity related charges, like food, travel, and accommodation do not qualify for either of the credits and must be subtracted from the total fee paid. As well, the cost of equipment purchased by parents from third-party suppliers is not a qualifying cost for the purpose of the credits.
It’s easy to see that expenditures made for summer activities could qualify for both the child care expense deduction and for one or the other of the Children’s Fitness or Children’s Arts credits. It’s not, however, possible to double or triple dip when it comes to expenses related to children’s activities. Expenses which are claimed under any of the three possible categories (child care expenses, Children’s Fitness Tax Credit, and Children’s Arts Tax Credit) can be claimed only once, even if they might, by definition, qualify under more than one provision.
Where the same expenditure will qualify for both the child care expense deduction and the Children’s Fitness or Arts Tax Credit, the CRA requires that the parent first claim that amount as a child care expense. Any part of the expenditure which is not claimed as a child care expense (perhaps because the maximum limit for such expense claim has been reached) can be claimed for the Children’s Fitness or Arts Tax Credit, as long as the usual requirements for the particular credit are met.
The reduction in credit amounts claimable for 2016 is not, unfortunately, the only bad news for parents when it comes to claiming a tax credit for summer child care costs. Those reductions are, in fact, the first step in a two-stage phase-out of both the Children’s Fitness Tax Credit and the Children’s Arts Tax Credit. After 2016, both credits will be eliminated, leaving the general child care expense deduction as the only deduction or credit which can be claimed for child care costs incurred at any time of the year.
