Clients with children should be informed of tax provisions introduced in last spring’s budget — or they might miss out on the opportunity to save money.

A universal benefit, three new credits and several key revisions have been designed to help families.

“There are a lot of people who don’t apply for the credits they deserve,” says Heather Evans, tax lawyer and partner with national consulting firm Deloitte & Touche LLP in Toronto.

> Universal Child-Care Benefit. The Harper government’s promise of $100 a month to residents of Canada caring for a child under the age of six (they must live with the child) to defray child-care expenses was one of its key 2006 budget initiatives. The funding came into effect on July 1, 2006.

Advisors should note that anyone who already qualifies for the Canada child tax benefit will receive the amount automatically. Higher-income earners, however, need to apply or they won’t get the money. You should notify any of your clients who have young children.

As for tax implications, the UCCB is taxable, but in the hands of the lower-income partner, says Murray Pituley, senior tax and retirement planning specialist at Investors Group Inc. in Winnipeg.

In addition, he says, the benefit is not taken into account for programs that are net-income-tested, such as GST tax credits. That means this benefit will not be “clawed back.”

> Public Transit Pass Tax Credit. This non-refundable tax credit, which also came into effect on July 1, requires a minimum of a monthly pass on any bus, streetcar, commuter train or local ferry, says Karen Yull, tax specialist and principal with Grant Thornton LLP in Toronto.

All clients with children can take advantage of this new credit. “If the child is under 19, the parent can claim transit passes on his or her tax return,” Yull says.

Clients do not have to submit any documentation with their income tax returns, but they need to keep their expired monthly passes on file in case the Canada Revenue Agency questions their claim for the credit.

Transit passes should display the date, the transit authority, the amount paid and the identity of the rider. If some of this information is missing, receipts or credit card statements should also be kept. “Hold onto everything,” says Yull.

There’s no limit on the amount claimed, but taxpayers are expected to have documents proving they’ve purchased monthly passes to qualify, she adds. A receipt for 20 daily trips, for example, is inadequate proof.

> Text Book Tax Credit. This is a straightforward credit to benefit both part-time and full-time students. Post-secondary students get $65 for every month that they qualify for the full-time education credit and $20 a month for part-time.

Pituley estimates that, at the lowest personal income tax rate for 2007, the new credit could mean a student might save more than $80 in federal taxes.

“The good part about the credit is that any portion of it that is unused can be carried forward and used in another year by the student,” he says. “It’s also transferable to the parent.”

Since this credit piggybacks on the tuition tax credit and each student in full- or part-time studies gets a standard amount, no additional forms or receipts are needed.

> Children’s Fitness Tax Credit. This tax credit applies to children under the age of 16 who are in an eligible fitness program. The credit will cover up to $500 in registration fees per child.

The question, says Robert Flux, senior tax manager with Meyers Norris Penny LLP in Calgary, is how to define an “eligible” fitness program.

The details of this credit are still being worked out. A panel has been set up to advise the federal Department of Finance on how to apply the credit.

“There needs to be some strong legislation to define what does and doesn’t qualify,” says Flux. He expects this will be a grey area during the first year or so while some taxpayers try to push the envelope.

The main criteria is that a program will count only if the main point of it is physical activity. Ballet classes might count, for example, while Girl Guides or Boy Scouts probably won’t.

@page_break@Meanwhile, there will be added pressure on these programs, some of which are run by volunteers, to provide parents with documentation that will pass muster with the CRA.

Ottawa says this credit is not set to kick in until the 2007 tax year, which will result in complications for programs that straddle 2006-07. So, your clients may have registered their children for the 2006-07 hockey season, but it appears that they will be able to claim only the portion of hockey league membership dues that apply to 2007 — a transitional headache for program administrators and parents.

Because there are no guidelines in place, tax experts recommend that your clients ensure that they get — and keep — receipts for all physical activity programs.

> Changes To Child Disability Benefit. Two changes took effect last July that will put the child disability benefit into even more family homes, according to Pituley.

If your client’s child meets the strict criteria for the CDB (children must be significantly affected by their disability to qualify), the maximum payment has increased to $2,300 from $2,044.

More significant, however, is that the rate of clawback for high-income earners has been substantially reduced — to 2% for those families with one disabled child and 4% for those with two or more.

Families with one disabled child would have to be making more than $150,000 annually to have their CDB reduced to zero. Up until now, the ceiling was set at slightly more than $55,000, says Pituley.

The CRA requires a certificate, signed by a doctor, that outlines the child’s eligibility for the CDB. If a client is already receiving the CDB, nothing new needs to be done.

“This one caught people a bit by surprise because most people wouldn’t have to do anything to collect it,” Pituley says.

If you have clients who meet the income threshold for the CDB, you should notify them.

> Changes To Exemptions For Scholarship Income. Ottawa has nixed its old rule that exempted only the first $3,000 of scholarship income for students. It now allows the entire amount of a scholarship, bursary or fellowship to be tax-free. (Please see story below.)

This is draft legislation at this time, says Flux. IE