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  2006 tax credit helps Canadian adoptive parents
Family Helper editor

(Mar. 18, 2007)   Doing your income tax return for 2006? Don't forget the tax credit available if you adopted last year.

The credit could be worth up to $1,560 per adoption. That's not much of a break on the expense of an adoption, as I pointed out in my previous article, "Adoption tax credit ... finally passed" (Feb. 23, 2005). Nevertheless, it's worth making a claim if you adopted last year, and here's how:

* You may claim up to $10,220 in eligible expenses for any adoption finalized in 2006 (domestic or international) and get a credit of up to $1,560. (You subtract the credit from the tax you owe.)

* You can claim for expenses dating back to when you opened your adoption file with an agency (so it could cover expenses in 2005 and earlier).

(The tax credit applies to any adoption finalized after Jan. 1, 2005, when the credit began. So you can still claim for an adoption finalized in 2005, if you forgot to do so on your 2005 return. You would do this separately from your 2006 return. For the 2005 year, file a T1 Adjustment Request, Form T1-ADJ.)

Here are details of the federal adoption expense tax credit.

The credit

Canadians who adopt may claim up to $10,220 in eligible expenses for any particular adoption. It's a 15.25% non-refundable credit. When calculating your tax payable, you get to deduct 15.25% of up to $10,220 in expenses during the "adoption period". The adoption period starts when you open an adoption file with your provincial or territorial ministry responsible for adoption, or with a licensed adoption agency. It ends when the adoption order is issued, or the when the child starts living with you, if that is later.

"Non-refundable" means that if the credit takes you past the point of owing zero taxes, you wouldn't be refunded any excess. (And if the government owed you a tax refund, then the adoption tax credit wouldn't be worth anything to you.)

Eligible expenses

* Fees paid to an adoption agency licensed by a provincial or territorial government.
* Court costs; legal and administrative expenses.
* Reasonable travel and living expenses for child and adoptive parents.
* Document translation fees.
* Mandatory fees paid to a foreign institution.
* Mandatory expenses incurred for the immigration of the child.
* Other reasonable expenses required by a provincial or territorial government or an adoption agency.

Where to make your claim

You enter "Adoption Expenses" on line 313 of Schedule 1, "Federal Tax". What you can claim is listed on page 37 of the 2006 Tax Guide, and at the Canada Revenue Agency site.

If you live in Newfoundland and Labrador, Ontario, Manitoba, Alberta or Yukon, be sure also to claim your adoption expenses on line 5833 of Form 428 (Provincial Tax).

Here's a rundown of other credits and deductions for 2006 which may apply to you.

Exemptions and Credits

* Personal Tax Rates - Base federal tax rate is 15.25% (on the first $36,378 earned).
* Basic Personal Exemption - The basic exemption is $8,839.
* Spousal Exemption - This exemption applies to a low or no-income spouse and is $7,505.
* Pension Income Credit - For those receiving a pension income, the exemption has increased to $2,000.
* Canada Employment Credit - Effective July 1, 2006 every employed taxpayer receives a tax credit on the first $250 earned for 2006.

Benefits for Children

* Universal Child Care Benefit - $100 per month for each child under six. It replaces the supplement paid under the Child Tax Benefit program.
* Child Tax Benefit - The supplement previously available for children under 7 was eliminated on July 1, 2006, except for children who reach seven by June 30, 2007.
* Child Disability Credit - This tax-free benefit has increased to $2,300 for 2006 and is paid monthly with the Child Tax Benefit.

Changes for Everyone

* Refundable Medical Expenses - Medical expenses up to $1,000 may be refundable in 2006. This refundable credit is income tested and reduction of the refundable amount begins at $22,140.
* Public Transit Passes - Starting July 1, 2006, monthly or yearly Public Transit passes qualify for a credit against income tax. This credit is claimed by the lower income-earning spouse and may be claimed for dependants under 19. Receipts are needed; bus tickets do not qualify.
* Adoption Expense Tax Credit - For 2006, the adoption tax credit recognizes specified adoption expenses up to a maximum of $10,220. The credit is non-refundable and has a maximum federal benefit of $1,560.
* RRSP Contributions - For 2006, and subject to RRSP contribution room available, the limit has been raised to $18,000.

Post-Secondary Students

* Textbook Tax Credit - In conjunction with the Tuition Credit, the new textbook credit allows a credit of $65 a month for full-time students and $20 a month for part-time students.
* Scholarship and Bursary Income - Effective 2006, income received for post-secondary education or occupational training is tax-exempt.

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"From Family Helper,"



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Contact: Robin Hilborn,
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©2009 Robin R. Hilborn
Updated Mar. 19, 2007

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