Adoption Expense Credit
Canadian couples seeking to adopt children have, of late, found that the process for doing so is cumbersome, bureaucratic, time consuming, and very expensive.
Compounding the problem is the relative shortage of Canadian-born babies needing adoption, forcing many parents to look to the United States, Asia, and Eastern Europe, which only increases the expense involved. In all cases, third party agencies and lawyers must be engaged to obtain the necessary permits, immigration approvals, and legal orders.
All of these third parties charge substantial fees, and until 2005, it has not been possible (save for Quebec residents) to obtain any form of tax relief for these costs.
Adoption advocacy groups have lobbied extensively for some form of tax assistance, and the Canadian Federal Government has finally relented, as of 2005.
Now, adoption expenses, to a maximum of $10,000, can be claimed as a non-refundable personal tax credit. As a tax credit, that means the dollar value is limited to the rates applicable to the bottom tax bracket - about 22% in B.C., so the maximum credit value is about $2,200.00.
Adoptive couples can split the adoption expenses between them, so long as the total claim does not exceed $10,000.00. We anticipate that most couples will choose to have one spouse make the full claim.
Eligible adoption expenses include:
- fees paid to an adoption agency licensed by a Provincial Govt.;
- court costs and legal fees related to the obtaining of an adoption order;
- reasonable and necessary travel and living expenses of the child and the adoptive parents;
- document translation fees;
- mandatory fees to a foreign institution; and
- any other reasonable fees related to the adoption required by a provincial government or an adoption agency licensed by such government.
Parents will be able to claim the credit only for the taxation year in which an adoption is finalized, and will be able to include all expenses incurred (which may have been in a prior year) from the earlier of the time the child’s adoption file is opened with the provincial ministry for adoption, or a licensed adoption agency, or when an application to adopt is made to a Canadian court.
This provision applies for 2005 and subsequent years. After 2005, the adoption expense limit will be indexed for inflation.
Unfortunately, the law is not retroactive, so expenses incurred for adoptions that completed prior to 2005 are not creditable.