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  • Section 7 deductions clarification

    Good morning everyone,

    Am I missing anything in my calculation of net Section 7 expenses, or have I included anything that is ineligible to be included? I live in Alberta.

    Gross Child Care Costs

    MINUS

    - Child Tax Benefit
    - GST Rebate
    - Refund from claiming child care costs ($150 per every $1,000 claimed)
    - Eligibility for child care subsidy
    - Working Income Tax Benefit

    = Net section 7 expenses

    I did not include UCCB because it is included in line 117 of the tax return.

    When including the refund that the primary parent received for claiming child care expenses, if the amount is not an equal thousand, do I pro-rate the additional $400, or is that amount rounded down to the nearest $1000?

    Are the credit amounts claimed on line 305 (Amount for an eligible dependant) and line 367 (Amount for children born after 1995) included in any of the benefits above, or is a separate calculation necessary to determine the amount of tax credit that was received?

    Also, am I correct in my understanding that the Alberta Family Employment Credit and the Working Income Tax Benefit are 2 separate benefits?

    Thank you!

  • #2
    IMHO you are overdoing it. You do not include every single tax refund or rebate, only those that are directly applicable to the child care expense.

    When you include GST rebate, how is this applicable? Only if you are paying GST on the child care, and then receive a rebate on your total GST. You would properly calculate what percentage of the GST was for child care, out of your entire yearly budget. However GST is not charged on most childcare, especially true of licenced daycare. It may be charged in some instances for home daycares.
    • If your total GST payable spending was $20,000, and you spent $4,000 of that on child care, then up to 20% of the GST rebate may applied to child care.
    • If your GST rebate for the year was then $200, you might apply $40 to the section 7 expense. However, again, licenced daycare is exempt.
    The Child Tax Benefit is NOT applied to the section 7 directly. It IS considered as part of total income for purposes of determining the percentage paid by each party. Assuming you have more than 60% physical custody:

    • If your ex's income were $50,000, and your net income were $19,000, and you had one child, your CCTB for the year would be $4,800. Your ratio would be calcualted as:
    • 23,800/ ($23,800 + $50,000) = 32%
    The Working Income Tax Benefit, would be included in your total income for the purposes of calculating section 7 ratio. The maximum benefit is $989. So add this to the amount above (rounded up to $1000 for simplicity):
    • $24,800 / ($24,800 + $50,000) = 33%
    At $19,000, your marginal tax rate in Ontario is 20%. You would receive $200 for every $1000 claimed. For one child over 7, the maximum claim is $4000, so your return would be $800. This would be applied to the total amount of child care paid.
    • Assuming $400/month, $4,800/year, the amount of child care for the purpose of section 7 would be net $4,000.
    The section 7 split would then look like this:

    Child care paid: $4,800
    Less: Tax Refund: $800
    Net of Tax: $4,000
    Paid by CP @ 32%: $1,280
    Paid by NCP @ 68%: $2,720

    If you received child care subsidy, this is usually paid directly to the provider by your municipality. Your receipt would be for the net amount. Ordinarily this doesn't affect section 7 calculations since it is done "behind the scenes." However if yours is a unique case and you pay the gross amount, and are somehow reimbursed, then the amount of subsidy would come off of the total amount before taxes.

    Comment


    • #3
      Originally posted by CuriousBug View Post
      - Child Tax Benefit
      - GST Rebate
      - Refund from claiming child care costs ($150 per every $1,000 claimed)
      - Eligibility for child care subsidy
      - Working Income Tax Benefit
      For all section 7 expenses you just use the two parents' line 150 incomes to determine their proportions. No other fancy calculations are necessary unless perhaps one parent is self-employed and line 150 is not an accurate reflection of their income.

      The only way tax returns change anything is that the bolded part above is included to determine the actual child care cost for that one type of section 7 expense. So if your ex claims all the child care, and it makes a difference of $1000 on income tax vs not being claimed, then your proportionate share of child care expenses is calculated on the total cost minus that $1000.

      No, it's not perfectly fair, but this is one of those cases where perfect fairness is sacrificed in the interests of simplicity.

      Comment


      • #4
        I've had so many problems with these section 7 expenses too (babysitting)

        I do not have my children 60% of the time. (Ex refuses to give me additional time which I am available for....clearly because she wants top guideline support/section 7 expenses...we have right of first refusal in our agreement, but she doesn't follow it--example pd days/holidays, I will tell her I'm available for kids and she will send them to babysitter instead)

        Anyways, her CCTB has not been calculated in to her total income, when we calculate the proportional share expenses....and I have always wondered why. Ex just keeps saying it's included in her income (Yet the yearly income she disclosed this year to me was only her T4 from her employment...no income tax information at all)

        So Mess, you said that "The Child Tax Benefit is NOT applied to the section 7 directly. It IS considered as part of total income for purposes of determining the percentage paid by each party. ASSUMING YOU HAVE MORE THAN 60% physical custody:

        So because I don't have more than 60% of physical custody, ex's CCTB does not get calculated in to her yearly income when calculating our proportional share???

        Comment


        • #5
          It's just crazy how my ex's income can go up by approximately $15,000/more because of child support, section 7, I give her, plus the government benefits....and they don't have to claim it as income/use it as income when it comes to child care/activities, etc. for the kids........Yet my income drops down, I barely make ends meet/go in to debt.

          Comment


          • #6
            There's too much in here. For S7 childcare expenses, the cost that is shared between the parents is the *gross cost of childcare* (what's on the receipt from the provider) minus the *tax benefit received for expenditures on childcare* (the value of which depends on the tax bracket of the person claiming the costs) and *eligible subsidy* (which depends on the income of the person paying for child care). The other things in here (GST rebate, child tax benefit, working income tax benefit [not even sure that that is]) are not related to S7 and should not be in your calculations.

            Originally posted by CuriousBug View Post
            Good morning everyone,

            Am I missing anything in my calculation of net Section 7 expenses, or have I included anything that is ineligible to be included? I live in Alberta.

            Gross Child Care Costs

            MINUS

            - Child Tax Benefit
            - GST Rebate
            - Refund from claiming child care costs ($150 per every $1,000 claimed)
            - Eligibility for child care subsidy
            - Working Income Tax Benefit

            = Net section 7 expenses

            I did not include UCCB because it is included in line 117 of the tax return.

            When including the refund that the primary parent received for claiming child care expenses, if the amount is not an equal thousand, do I pro-rate the additional $400, or is that amount rounded down to the nearest $1000?

            Are the credit amounts claimed on line 305 (Amount for an eligible dependant) and line 367 (Amount for children born after 1995) included in any of the benefits above, or is a separate calculation necessary to determine the amount of tax credit that was received?

            Also, am I correct in my understanding that the Alberta Family Employment Credit and the Working Income Tax Benefit are 2 separate benefits?

            Thank you!

            Comment


            • #7
              Okay, I see Mess just said what I was trying to say, except more accurately and with more detail. So ignore what I said and pay attention to him/her!

              Comment


              • #8
                Originally posted by knackered View Post
                So Mess, you said that "The Child Tax Benefit is NOT applied to the section 7 directly. It IS considered as part of total income for purposes of determining the percentage paid by each party. ASSUMING YOU HAVE MORE THAN 60% physical custody:

                So because I don't have more than 60% of physical custody, ex's CCTB does not get calculated in to her yearly income when calculating our proportional share???
                I did not say what you implied I said. The phrase "Assuming you have more than 60% physical custody:" ended with a colon to indicate that it applied to the calculations that followed. The reason being, I wanted a simple example calculation so I used a CP/NPC situation.

                You are reading into my statement that somehow the CCTB is applied differently if there is shared parenting. This is nonsense, and it is not what I wrote. The amount of CCTB would be different if there were shared parenting; each parent would receive half the benefit proportionate to their income.

                Comment


                • #9
                  Thank you so much for the replies and examples/calculations.

                  To clarify, the mother has primary physical custody and the father has 3 weekends per month. The parents have joint legal custody. The children are 2 and 4.

                  The mother employs a nanny, under the table, to watch the children while she works. She claims the nanny costs $1400 per month. After asking and asking for receipts to prove the child care amount, the mother provided handwritten receipts, written in her own handwriting. They did not have any details, they did not say "childcare" or "nanny" on them, nor were they signed by the nanny The mother claimed $15,400 in childcare on her taxes even though she has no receipts, and the nanny did not claim this money as income. The father isn't sure what amount to pay for childcare. His proportionate share of section is 71%, however it's an under the table nanny, there are no legit receipts, there is no contract verifying that the nanny costs $1400, and the nanny and the mother are friends so it is not far fetched that they could make up any amount they wanted.

                  As I understand section 7, it is calculated net of subsidies, benefits, tax deductions and credits, as well as the eligibility to receive any subsidies, benefits, tax deductions or credits. The proportionate share is based on out of pocket expenses. The mother receives $988 per month from benefits related to child rearing and child care expenses. Wouldn't that be deducted from gross childcare costs before doing the 71/29% split?

                  Comment


                  • #10
                    Look, first of all, you are certainly getting $15,000 of service for your children. Perhaps the mother is getting this amount of service at a reduced rate, but the value of service is still being provided.

                    Secondly, I have explained in detail how various benefits are applied. Why are you obsessing over something you already have the answer to?
                    As I understand section 7...
                    From what you are posting, no you do not understand section 7.

                    The only benefits that are directly applied to the cost of child care for the purpose of splitting the cost of section 7 expenses is the tax deduction for the care. I can only keep saying this over and over.

                    Child care is not the only section 7 expense, and therefore the legislation mentions a wide variety of possible subsidies and benefits. If you get a subsidy so that your son can play hockey, this will affect section 7 calculations. You are focusing so hard on your own situation you are forgetting that the legislation is written for everyone, and not everything in it will apply to you.

                    With two children under age 7, the mother may claim up to $14,000 in child care, so she has entered an appropriate gross amount, at least as far as CRA is concerned.

                    To offer a personal opinion, the situation is either that the "nanny" is a legitimate employee, in which case the amount paid is appropriate, and in fact cheap. Or else the "nanny" is a friend or neighbour who is also a mother and is watching the children together with her own for a lessor cost.

                    It is highly unlikely that she is doing it for free. You are benefitting from the child care whether you realize it or not. If she wasn't using this nanny, she would have the children in some other costly daycare. One way or another you would be paying section 7 expenses.

                    You are caught up in the idea of the receipts, which is a legitimate question, but not something you should obsess over. $15,000 worth of services are being received. Possibly she is getting this service at a reduced rate. You don't know this, however.

                    If you go to court you may subpoena the nanny, and then who knows what she will claim. You would be hard pressed to get her to produce her own income tax claim.

                    Comment


                    • #11
                      Mess has a good point about services received. You know your children are being looked after, and you haven't mentioned that you have any concerns about the quality of their care. $15 400 is reasonable for a full-time nanny. Why not just pay your share of it?

                      Two suggestions:

                      1. You pay the mother 71% of $1 400 every month. At tax time when you exchange your returns for the year, she reimburses you 71% of the tax benefit she receives from claiming the maximum amount she is eligible to claim ($14 000) for child care. Exactly how much this amount is will depend on what tax bracket she is in.

                      2. You estimate her income for the year and determine how much a $14 000 childcare tax deduction would be worth. You figure out what 71% of that deduction would be. Then every month you pay her $1 400 minus 1/12 x 71% of the deduction. No money changes hands at tax time.

                      #1 is simpler and more transparent, because the reconciliation is done when you exchange tax returns, so each of you knows exactly what the other earned and spent during the past year. #2 is more complicated and is based on guesswork about how much each party will end up earning over the course of the year and how much child care will end up costing. However, for #1, you would need to get your ex to agree in advance that this is the way you will share the tax benefits associated with paying for child care.

                      Comment


                      • #12
                        Thanks Mess. Sorry for misreading what you wrote. I clearly find it all very confusing! But finally understand how you meant it now!

                        Comment

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