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Tax credit for adoption expenses (line 313)

Adopting a child is an idea that has floated in and out of our household for a while.  My husband and I attended an information session on international adoption about 8 years ago, and decided to discuss it again after we had our biological children.  Once our youngest was old enough for us to entertain the idea again, the waiting period had increased from about a year to 2+ years, with many countries having more willing parents than children available to adopt.  Since the need didn’t seem as great anymore, we shelved the idea.

Every once in a while, we’ll get an e-mail or see an article about older children in Canada waiting to be adopted.  Or, I’ll read a book like No biking in the house without a helmet by Melissa Fay Greene and we’ll entertain the notion once again.  Then, I’ll do a few minutes of investigating online and get scared off by web sites warning of how difficult the adjustment can be.  They talk about how love and kindness are not always enough to help a child with a problematic background to integrate into an adoptive family.  I don’t want my children in a situation that could potentially be dangerous, and my protective instinct for them causes me to recoil in fear.

But then, there are so many times that adoption works.  The horror stories do not come to pass.  A child finds a loving home.  The family thrives with the presence of the child.  The biological children gain a sibling who they have a close and treasured relationship with.  If only there was a way to know ahead of time!

For those who have or are willing to make the commitment, in honour of adoption month, I wanted to discuss the tax credits available for adoption expenses.  Adopting a child through a private agency is expensive.  According to the information online for The Children’s Bridge, agency fees and country fees can total $8,500-$34,500 depending on which country you adopt from.

By contrast, public adoption is less costly.  According to Waiting to belong, public adoption in Canada expenditures run at about $300 for criminal record checks and medical assessments.  Some provinces provide ongoing financial support to the adopting family for various expenses associated with raising the child.

Federal tax credit

Whether the adoption is private or public, on your Canadian Federal tax return, you can claim a non-refundable tax credit for adoption expenses up to a maximum amount (in 2012) of $11,440 on line 313 of your tax return.  A non-refundable tax credit of $11,440 multiplied by the appropriate tax rate (15%) means that the money you save on your Federal tax return works out to $1,716.

Provincial tax credits

Depending on where you live, you may also be able to claim a Provincial tax credit.  The following provinces allow a non-refundable tax credit for adoption expenses on line 5833 of the provincial form 428:

Province Maximum claim for 2012 Value of Provincial tax credit at lowest tax rate
Newfoundland and Labrador $11,115 $856
Ontario $11,474 $579
Manitoba $10,000 $1,080
Alberta $11,820 $1,182
British Columbia $11,440 $579
Yukon $11,440 $805

Source:  http://www.taxtips.ca/nrcredits/nrcredits2012base.htm

The highest amount of tax savings goes to Alberta residents who would be eligible for Federal tax savings of $1,716 and Provincial tax savings for $1,182, for a total of $2,898.

Eligible expenses

The types of expenses that are eligible for the credit include (this list is directly from Canada Revenue Agency’s web site):

  • fees paid to an adoption agency licensed by a provincial or territorial government (an “adoption agency”);
  • court costs and legal and administrative expenses related to an adoption order in respect of 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 in respect of the immigration of that child; and
  • any other reasonable expenses related to the adoption that are required by a provincial or territorial government or an adoption agency.

If you are reimbursed for part of your expenses, you must reduce your eligible expenses by the amount of your reimbursement.  For example, there are some organizations that offer adoption grants.  If the total cost of the adoption was $12,000 and you received a non-taxable grant for $2,000, your eligible expenses for line 313 now total $10,000.

However, if your reimbursement is taxable (for example, it is coming from your employer), it will be reported as income on your tax return so you do not need to reduce your eligible expenses for purposes of the adoption expenses tax credit.

When expenses can be claimed

These expenses can be deducted in the tax year that includes the end of the adoption period in respect of the child.  The adoption period ends at the later of:

  • the time an adoption order is issued by, or recognized by, a government in Canada in respect of that child; and
  • the time that the child first begins to reside permanently with you.

So, if you began the process of adopting in 2009, and the child came to live with you in 2012 when the adoption order was issued by a government in Canada, then you would claim all of your expenses on your 2012 tax return, to a maximum of $11,440 (Federal).  Parents can split the expenses and each claim a portion on their respective tax return if they wish, but the maximum per child remains the same.

Next steps

A tax credit is not going to be a determining factor in an adoption decision.  However, it does at least provide a small amount to help offset the costs involved in the process.  If you’re interested in adopting, more information on the process can be found here.  Perhaps one day our family will take the plunge.  I’ll be sure to let you know if we do!

November 25, 2012

2 responses on "Tax credit for adoption expenses (line 313)"

  1. I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you down the road!

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