yet another S7 calculation question

[HappyMomma]

This may be already answered, however there are SO many threads to wade through.

So, according to the Line-by-line help for Worksheet 2, we need to take into account the tax break we get when paying childcare.
What I don't get is - after we take that into account and re-adjust who pays what, the amount on our taxes would then be different. Are we supposed to claim what we 'actually' paid and not include the portion that gets reimbursed?
For example, if we are supposed to each pay 50%, I paid 1600 and my ex paid 1000 then does my ex claim 1000 on his taxes even though he'll pay me the $XXX to make up the difference? Because if the then claims $1000 + $xxx, his tax break will be more....

And, am I to assume that since we need to take tax credits into account, that S7 expenses are not usually reimbursed until after tax returns are exchanged the following year?

Thanks!

[HammerDad]

To my knowledge (and this may differ in cases of 50/50 custody), only the parent with custody may claim child related expenses.

If you both make the same income, and the cost is then 50/50 here is how it works:

Parent A Income = $50,000
Parent B Income = $50,000

Cost = $3000

Tax Refund due to parent A, as custodial parent = $800

Actual cost of child related expense = $2200

Parent A pays $1900
Parent B pays $1100

Parent A recoups the difference at tax time.

My impression is that you think both parents are allowed to make the claim. I don't believe that the CRA would permit that.

[HappyMomma]

To my knowledge (and this may differ in cases of 50/50 custody), only the parent with custody may claim child related expenses.

If you both make the same income, and the cost is then 50/50 here is how it works:

Parent A Income = $50,000
Parent B Income = $50,000

Cost = $3000

Tax Refund due to parent A, as custodial parent = $800

Actual cost of child related expense = $2200

Parent A pays $1900
Parent B pays $1100

Parent A recoups the difference at tax time.

My impression is that you think both parents are allowed to make the claim. I don't believe that the CRA would permit that.

We have shared custody so we both pay childcare expenses.From the CRA website:

In shared custody situations, one parent (the first parent) may pay the child care provider and be reimbursed for a portion of the child care costs by the other parent (the second parent). In these cases, the child care provider should issue a receipt to the first parent for the full amount of the payment for child care expenses. The first parent should issue a receipt to the second parent for the amount of the reimbursement. The first parent is generally considered to have paid child care expenses in the amount they paid the child care provider, net of the reimbursement received from the second parent. The second parent is generally considered to have paid child care expenses in the amount of the reimbursement they paid to the first parent.

To make matters even more complicated, if my new partner made less than me, he'd have to claim my childcare expenses. SO DUMB.

[HammerDad]

The CRA quote says what I was saying.

Parent A pays full amount
Parent A requests reimbursement from Parent B for Parent B's proportional share.
The proportional share must take into consideration all tax rebates.

[dinkyface]

From CRA: ...The first parent is generally considered to have paid child care expenses in the amount they paid the child care provider, net of the reimbursement received from the second parent. The second parent is generally considered to have paid child care expenses in the amount of the reimbursement they paid to the first parent.

I believe 'is generally considered to have paid x' means 'is permitted to claim x as a deduction'. I think they are saying that if one person pays the daycare, the parents CAN first split it between themselves, and THEN each claim their split on their taxes. As opposed to the original payor claiming it all, then splitting the net-of-tax amount after.

Which I agree is ridiculously complicated to figure out when you are trying to do a X:Y split.

[HappyMomma]

It says they 'may' pay the provider - in our case we both pay - but regardless, we both claim our expenses - so it makes it tough to determine the tax benefit for section 7 calculations.

I think I will suggest we both do a returns with and without the entire childcare amount, figure out the benefit each of us would receive and pick the middle number - unless the benefit is the same regardless of income level. I'll have to look into that.

[HammerDad]

If you are both claiming the amount in your taxes, there shouldn't be a need to determine this further. If you have worked out the cost proportionally to incomes, the tax credit won't change anything. You are each claiming your own expense, and get to write off your actual cost.

In this scenario, neither party get should get to benefit from the other parties deduction, as they have claimed their own. The only if one parent is claiming the write off does it make a difference.

[stripes]

I'm not sure what the difficulty is if you both pay the provider, as long as the amount you pay is proportional to your incomes. Is that not what you do? You have receipts for what you paid, your ex has receipts for what he paid. You both claim.

With D8, I give the provider a cheque for 53% of her child care costs every month and the ex gives her a cheque for 47%. The provider gives each of us a receipt. We claim what we paid. No problem.

[dinkyface]

If your incomes are quite different, then marginal tax rates can also be quite different. e.g.if you split costs 80:20, and the higher earner gets back 44%, and the lower earner gets back 15%, resulting in an actual split of 72:28. Which is a difference of over $500 on a $7K daycare bill. Some might find that enough to fight over.

[HammerDad]

If your incomes are quite different, then marginal tax rates can also be quite different. e.g.if you split costs 80:20, and the higher earner gets back 44%, and the lower earner gets back 15%, resulting in an actual split of 72:28. Which is a difference of over $500 on a $7K daycare bill. Some might find that enough to fight over.

$500 is less than 2 hours of the average lawyers time. The cost/benefit isn't gonna be there.

[Mess]

If the child is going to be in daycare for another ten years, and there are other issues that will require going to court anyway, then this is $5000 tacked on to another necessity.

If an ex is high conflict over a $500 tax deduction, they are likely high conflict over other issues as well.

[stripes]

In a high-conflict situation, it sounds like the choices are either a) let the higher-tax-bracket earner claim the entire cost in order to maximize the value of the deduction, then fight over who owes who what after taxes are done; or b) have each parent pay their proportionate share and claim their own costs, and accept that the lower earner may be paying a slightly greater share of the after-tax costs in exchange for not having to fight with his/her ex. I would definitely go for b. Daycare costs will drop dramatically once the kid is in school anyway.

[HappyMomma]

The issue is that we have each been paying our own expenses. He has regular expenses, I do not. The children are not in daycare. We need to add our expenses together and figure out who owes who. But naturally, I want the tax deductions we will receive to reduce the amount before splitting it.

[HammerDad]

OK, now I am even more confused.

You say you are each paying your own expenses.

You say he has regular expenses, but you do not. What are these expenses? Are you paying your proportional share of these expenses?

If it is not daycare, and it is some sort of physical activity like baseball or dance, the maximum deduction for the child fitness credit is $500 per child. Which will credit the average tax payer less than $100 on the refund. If incomes are the same, you'd be entitled to $50 or less of the tax rebate.

If it was child care, it is likely worth pursuing. If it isn't, and isn't another form of big ticket amount which you are paying your proportional share for, I wouldn't bother.

My ex claims my D8's expenses for dance to the max $500. The actual cost of dance is closer to $4000 per year. But to try and get $50 back, just isn't worth the hassle....

Edit - if you each are paying for your own expenses and not contributing to the other parents expenses proportionally to income, you'd have no right to claim anything as you didn't contribute.

[HappyMomma]

OK, now I am even more confused.

You say you are each paying your own expenses.

You say he has regular expenses, but you do not. What are these expenses? Are you paying your proportional share of these expenses?

If it is not daycare, and it is some sort of physical activity like baseball or dance, the maximum deduction for the child fitness credit is $500 per child. Which will credit the average tax payer less than $100 on the refund. If incomes are the same, you'd be entitled to $50 or less of the tax rebate.

If it was child care, it is likely worth pursuing. If it isn't, and isn't another form of big ticket amount which you are paying your proportional share for, I wouldn't bother.

My ex claims my D8's expenses for dance to the max $500. The actual cost of dance is closer to $4000 per year. But to try and get $50 back, just isn't worth the hassle....

Edit - if you each are paying for your own expenses and not contributing to the other parents expenses proportionally to income, you'd have no right to claim anything as you didn't contribute.

It's for childcare - he hires kids in his neighbourhood to watch the kidlets, I pick them up after schooland don't require care. However, I do pay for care during the summer when school is out. So, we've each accrued our own expenses and they will need to be adjusted at some point.

I haven't paid him anything yet because I haven't received any information on what he's paid (even though I've requested several times).