Navigating the Adoption Process: Understanding Tax Credits for Adoption Expenses in Canada

Adopting a child is a journey filled with anticipation, joy, and its fair share of challenges. Among these challenges are the significant expenses that can accumulate throughout the adoption process. Fortunately, Canadian tax law provides support for adoptive parents through the Adoption Expense Tax Credit, which allows for the claiming of adoption-related expenses on personal tax returns. This guide aims to provide an updated overview of how to leverage this tax credit, including the maximum claim amount, eligible expenses, and the adoption period.

How Much Can You Claim?

For the current year, it’s essential to verify the maximum claim amount directly from the Canada Revenue Agency (CRA) or the Income Tax Act, as this figure is subject to change. Historically, the amount has been adjusted to reflect inflation and other factors. The Adoption Expense Tax Credit allows for a deduction determined by a formula involving the appropriate percentage for the taxation year and the lesser of the maximum claim amount set for the year and the total eligible adoption expenses minus any reimbursements or assistance received.

What Expenses Can Be Claimed?

Eligible adoption expenses are quite comprehensive, ensuring that many of the costs incurred by adoptive parents are covered. These include:

• Fees paid to an adoption agency licensed by a provincial or territorial government.
• Court costs, legal, and administrative expenses related to an adoption order for the child.
• Reasonable and necessary travel and living expenses of the child and the adoptive parents.
• Document translation fees.
• Mandatory fees paid to a foreign institution.
• Mandatory expenses paid for the child’s immigration.
• Any other reasonable expenses related to the adoption required by a provincial or territorial government or an adoption agency licensed by a provincial or territorial government.

Adoption Period: When Do Expenses Need to Have Occurred?

The adoption period defines when the expenses must have been incurred to be eligible for the tax credit. This period:

• Begins at the earliest of the following dates:
  • When an application is made for registration with a provincial or territorial ministry responsible for adoption or with an adoption agency licensed by a provincial or territorial government.
  • When an application related to the adoption is made to a Canadian court.
• Ends at the latest of the following dates:
  • When an adoption order is issued by, or recognized by, a government in Canada for that child.
  • When the child first begins to live permanently with the adoptive parents.

Sharing the Claim

Section 118.01(3) of the Income Tax Act addresses the situation where more than one individual is entitled to a deduction for the adoption of the same child. This provision is particularly relevant for adoptive parents looking to split the claim amount, ensuring that the tax credit can be distributed in a manner that best benefits the family’s overall tax situation.

Conclusion

The Adoption Expense Tax Credit is a valuable resource for adoptive parents in Canada, offering financial relief during the adoption process. By understanding the eligible expenses, the adoption period, and how to claim the credit, adoptive parents can better navigate the financial aspects of bringing a new family member home. Always ensure to check the latest updates from the CRA or consult with a tax professional to make the most of the benefits available to you.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2024 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning service.