Stop fretting about misplacing those receipts.
The last year Canadians can claim federal tax writeoffs for their children's fitness and arts activities is 2016, based on changes announced a year ago in Finance Minister Bill Morneau's first budget.
The Liberals said they wanted to make the tax system simpler and "better target" support for families with their new Canada Child Benefit, which gives more money to low-income families than to richer ones.
But Morneau's department recently explained additional rationale for the cuts.
The 2017 report on federal tax expenditures concludes the children's fitness tax credit (CFTC) and children's arts tax credit (CATC) had "significant shortcomings."
Turns out this Liberal move was about more than just dismantling a high-profile Conservative tax break.
An annex describes how ineffective and inefficient the tax credits turned out to be — something policy analysts had argued, but the previous government never revealed.
Aside from making the tax code simpler, here are four other ways the Liberals can defend phasing these out:
Many families never claimed them
Cutting the credits drew criticism: Certain families and some activity providers felt they helped.
Until 2013, parents could claim up to $500 of expenditures for either credit and deduct 15 per cent from their taxes ($75, if they had receipts for the full amounts.) At first, less than a third of families claimed anything.
In 2014, the fitness credit was beefed up: the amount doubled to $1,000 (then worth a $150 deduction) and the credit became refundable, so low-income families who paid little or no tax could get money back.
But even that year, the majority of families with children took a pass: only 43 per cent claimed one or both credits, accounting for less than half of all Canadian kids (47 per cent.)
The fitness credit was more popular (41 per cent uptake in 2014) than the arts credit (15 per cent uptake.)
Among families with sufficient annual income to be paying taxes (generally those reporting over $40,000), the percentage of families claiming either credit never rose over 55 per cent.
Helped rich families more
The tax credits were supposed to make activities more affordable.
But an analysis of the 2014 statistics found credits weren't as likely to be claimed by low-income families as those in higher income brackets.
Provinces including Ontario, Quebec and Saskatchewan offered additional refundable fitness and arts credits. But even where these added incentives were offered, families with annual household incomes under $40,000 were significantly less likely to take advantage.
When the actual tax savings were analyzed, the credits begin to look more like a windfall for rich families — who could likely afford the activities, regardless — than something that helped pay for what lower-income parents couldn't otherwise afford.
Too small to make a difference
Is $75 or $150, possibly received more than one year after the fact, enough incentive to sign up for pricey activities your child wouldn't otherwise enjoy?
The tax system is a slow way to provide discounts. Credits aren't available before payment for activities are required.
The report suggested several other reasons the credits weren't more popular:
- Until the fitness credit became refundable in the final years of its existence (the arts credit never was), why would the lowest-income families claim them? They didn't have tax owing anyway.
- The claimable amounts were capped: parents who could afford to spend more than the maximum did not benefit indefinitely.
- Having to keep receipts — and issue them — added an administrative burden to families and organizations. The cost of additional paperwork might have contributed to rising activity costs, offsetting the intended savings.
- There's more to family decisions than just cost: What do kids like? What are they good at? What's convenient?
Kids weren't any more active
There's little proof the fitness credit got significantly more kids off the couch. It may have just rewarded the parents of those already active.
Did the tax credit help some families swap low or no-cost activities for more expensive ones? Maybe.
Were some families too busy to sign up for more, regardless of the credit? Also possible.
The report mentions one 2010 survey in which only four per cent of parents said the fitness credit increased their children's participation.
The takeaway? A more efficient way for taxpayers to help all kids might be providing funding for free or low-cost recreational activities, rather than subsidizing pricier activities for only some families.