My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Wednesday, March 14, 2012

Confessions of a Tax Accountant-2012- Week 1

The Children’s Arts and Fitness Amounts

The federal government in its infinite wisdom has now added a Children’s Arts Amount credit to the Children’s Fitness Amount credit. From an accountant’s perspective, these credits are a nuisance. Already early this tax season, there has been much confusion with my clients because of the overlap of these credits and how these credits integrate with making a child care claim. Thus, I thought today, I would try and clarify the confusion surrounding these credits.

The maximum eligible expenses for each of the Fitness Amount and the Children’s Art Amount are $500. The first misconception most people have is that they think they save $500 dollars for each of these amounts or that each amount is worth a $500 deduction.

However, both the Fitness and Arts Amounts are actually tax credits worth at maximum, $75 each per child federally. The federal credit is calculated as $500 x 15% refundable credit=$75. There may also be a provincial credit for these amounts. For example, in Ontario, there is a Children’s activity credit worth $50.90 ($509x10%), that is a hybrid of the fitness and arts credit-i.e. both fitness and arts program are eligible for the credit.

Thus, the maximum tax savings per child who undertakes both eligible activities for fitness and the arts in Ontario is $209 ($75 fitness amount, $75 arts amount and $50.90 activity credit).

Children’s Arts Amount

The CRA discusses the details of the Children’s Arts Amount at this link.

You can claim a maximum of $500 in eligible expenses per child for fees paid in 2011 relating to the cost of registration or membership of your child in a prescribed program of artistic, cultural, recreational, or developmental activity. The cost covers registration for each child under the age of 16 at the beginning of the year. To qualify for this amount, a program must:

Be ongoing (either a minimum of eight consecutive weeks long or, in the case of children's camps, five consecutive days long) and be supervised and be suitable for children.

The program also has to meet one of the following criteria:

1) It contributes to the development of creative skills or expertise in an artistic or cultural activity;
2) It provides a substantial focus on wilderness and the natural environment;
3) It helps children develop and use particular intellectual skills;
4) It includes structured interaction among children where supervisors teach or help children develop interpersonal skills; or
5) It provides enrichment or tutoring in academic subjects.

The art's amount is entered on line 370 of Schedule 1, to a maximum of $500 per child.

There will be situations where an amount paid will qualify for both the Fitness and Art’s amounts. However, the CRA states in the notes on eligibility that amounts that can be claimed as the federal children’s fitness amount cannot be used for the Arts credit and thus, any excess amount over $500 already claimed for the Fitness Credit cannot be claimed for the Art’s amount. This was confirmed by calls our firm made to the CRA.

If you have paid an amount that would qualify to be claimed as a child care expense and that amount also qualifies for the children's arts amount, you must first claim this amount as a child care expense (as per the notes to this link). Any amount in excess of the child care claim may be claimed as a children's arts amount as long as the requirements are met, but the same amount may not be claimed once as child care and once as an art's credit.

Children’s Fitness Credit

As this credit has been around for a few years, I will not go into much detail about this program. Essentially the Children’s Fitness Amount, is a non-refundable credit and allows parents to claim a maximum of $500 paid towards an eligible program. The cost covers registration for each child under the age of 16 at the beginning of the year. It does not cover the costs of things such as equipment or travel expenses.

Details of the program are available here.

As per the CRA in its notes to the Fitness Tax Amount, if you have paid an amount that would qualify to be claimed as child care expenses, and the children's fitness amount, you must first claim this amount as child care expenses. Any unused part can be claimed for the children's fitness amount as long as the requirements are met.

So in summation, where an art's or fitness amount qualifies as child care, it must first be claimed as child care and any excess amount may then be claimed as an art's or fitness credit if the expense qualifies for either of the credits. Where an amount meets the criteria for both the art's and fitness credits, you can only make one claim, either the art's credit or the fitness credit, but you cannot claim both.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.