Financing your family: practical tips for parents-to-be

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Author: 
John Hakkarainen
Source: 
Focus on Adoption magazine
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Tax time is upon us again! John Hakkarainen, an adoptive father and professional money expert, shares the inside scoop on how to make your money work for you.

A stress-free financial plan for adoptive families

When people come into my office and see my family photos they’re often interested to know what our story is and how we became a family. Throughout my career as a financial planner, and particularly since my journey to becoming an adoptive father myself, I’ve been blessed to help many families with children who came to them through the adoption process. This includes families with children with disabilities and other unique challenges. These experiences have given me a compassionate and understanding perspective on the financial challenges many adoptive families face.

The adoption process involves a significant amount of planning. Your future tax bills and the level of government benefits you may be eligible to receive are determined by this planning. Here are some things to consider as you make your adoption plans. Be sure to consult a qualified CPA or CFP to assist you with these items.

Parental leave and your income

A pair of baby shoes

When you start to explore the adoption process it’s important to consider how you want your year of transition (after placement of your child or children) to look. Your income sources are an important part of this. If you are an employee, you are covered under Employment Insurance. This may not be enough, though. You will want to ensure that you have adequate income to avoid unnecessary financial stress.

Benefit eligibility

Line 236 of your income tax return (Net Income): Eligibility for many benefits is based off line 236. This line of your tax return represents the income that you are taxed on. Failure to complete your taxes on time may delay your benefits or affect your ability to qualify for them. If you are a small business owner or proprietor, business deductions are taken off before line 236 which may increase your benefit eligibility. If you are an employee and you are contributing to an RRSP or Pension Plan, you can claim those contributions against your income to help qualify for available programs. Eligibility is typically assessed either annually or every other year.

Adoption expenses and your taxes

Line 313 of your income tax return (Adoption Expenses): The Government recognizes that families incur significant expenses during the adoption process and has made provisions for families to claim a tax credit of up to $15,670 (tax year 2017) per child for incurred expenses. These expenses may include adoption agency fees, immigration fees, document translation fees, court and legal expenses, mandatory fees paid to a foreign institution, and reasonable travel and living expenses for the child and adoptive parents. It’s extremely important to note that this credit cannot be claimed until your adoption process has been formally completed. In my personal situation, it took 13 months after our children came home before the adoption process was complete.

Let’s look at an example. In 2016, spouses Jim and Kelly went to the USA where they had been matched with 3-year-old Isabel and 6-year-old Sam. The couple travelled to the USA several times and the kids came home in August of 2016. In June of 2017, their adoption was completed. They calculated that they spent $51,750 on the adoption process. They will be able to claim $31,340 ($15,670 per child maximum) as a tax credit to reduce their 2017 tax bill, which can be split between them. Jim will claim $27,000 of the tax credit for 2017 and Kelly will claim $4,340. Between their BC and federal taxes, they will reduce their combined tax bill for 2017 by $6,299.34.

"If you plan to claim this tax credit, ensure that you keep clear records that account for all of your expenses. These receipts and records do not need to be sent in, but you should keep them for 7-8 years so that they’re available if the CRA requests them at any point.

There are some expenses this tax credit will not support, such as a single adoptive parent helping in a future grandparent or other family member move closer to them to be a source of support. The credit also does not include any expenses that you may incur in your personal dwelling if you need to be away from home as part of the adoption process.

Child and family benefits

The Canada Child Benefit (CCB) and British Columbia Early Childhood Tax Benefit are programs that provide a tax free monthly benefits to families with children under the age of 18. The program support level is reduced as your income increases and is based on your income stated on line 236. In the case of Jim and Kelly, their current net income is $90,000 per year combined. The children are now 4 and 7. This makes them eligible for a monthly benefit of $525.83

Post Adoption Assistance

Post Adoption Assistance (PAA) is a program made available to families who adopt from MCFD. Adoptive parents can apply for financial support through their Adoption Social Worker, who would identify that the family may need funding for their child or family’s special needs. As a rule, families whose net income is less than $80,000 per year will be eligible for the program at 100%. If the family income is higher than this the benefit is reduced. The assistance can be in the form of specialized payments for health care costs, counselling, dental care, or respite. In some cases, such as families who adopt sibling groups or Indigenous families who adopt Indigenous children, tax-free monthly maintenance payments are also available.

Disability tax credits and benefits

Adoptive parents who care for children with conditions such as autism, Asperger’s syndrome, celiac disease, ADHD, Crohns disease, Down syndrome, FASD, or development delays may qualify for the disability tax credit (DTC) and the Canada child disability benefit. To apply for the DTC, parents must submit a form that is completed with the child's doctor. If approved for the DTC, you can claim up to $12,506 as a tax credit, amounting to tax savings of up to $2,513. You may also be approved for a child disability benefit after the completion of the DTC. This is a monthly tax-free benefit which is typically available if you meet the above criteria and are a recipient of the CCB.

Savings plans

Registered Disability Savings Plans (RDSPs) become available for families with children who are eligible for the DTC. For those families who have an income of less than $91,831 (line 236), the benefits of these programs are significant. By depositing $1500 into this investment plan yearly, the government will contribute a grant of $3500 each year. If your income is greater than $91,831, you are eligible for a $1000 grant if you set aside $1000.

A Registered Retirement Savings Plan (RRSP) can also be an effective tool to qualify for benefits. Simply put, RRSPs reduce what you show on line 236 (your net income). This has a ripple effect on your eligibility for many other programs. For example, if a child qualifies for the DTC and the adoptive family’s annual family income is $95,000, the parents should deposit a minimum of $3169 into their RRSPs to reduce their family income to under $91,831. This will ensure that the child is eligible for the full $3,500 grant in their RDSP. In addition to the increased grant, the parents will save $893 in tax.

You can be a financially healthy family!

As adoptive parents, we care a lot for our children and are willing to make many sacrifices to ensure their well-being is our top priority. By taking care of your financial health, you show your children the importance of making sound financial decisions. Children of parents who practice financial responsibility tend to become more financially secure themselves. In all of your adoption planning, please don’t forget to plan for your own future, including your retirement. Each aspect of your financial plan should align with your goals to create a prosperous future for both you and your children. 

John Hakkarainen is a proud father of three children. He is the Managing Partner of JFH Insurance & Investment Services Inc and a Certified Financial Planner, and works in partnership with Sun Life Financial. In his personal time, he enjoys spending time outside, coaching soccer, and cooking.