Adoption in Québec: Tax Return

The adoption of your child costed you at least around $10 000, maybe more than $20 000. You financed the adoption the best you could with the help of your family, your bank or you simply by thightening your budget to gather the funds needed to realize your dream.

Now, there is one good news: the Québec's government entitles you to a tax credit. A bad news: the federal don't. But a national campaign is under way to support a private Bill that would create a tax credit at the federal level.

The provincial tax credit

Basically, the tax credit works like this: in the year you get your adoption Court Order or the recognition of the foreign judgment (depending on the country), you may ask, for each children, for a tax credit equals to 30% of your adoption expenses up to a maximum of $6 000 in 2006.

To obtain this tax credit, you must present the TP-1029.8.63 form (Calculation of the refundable tax credit for adoption expenses) with your tax return. Here are the general conditions that you must respect to be eligible to the tax credit, as mentioned in this form:

"You may claim a refundable tax credit with regard to each child for whom you incurred adoption expenses giving entitlement to a tax credit, if you were resident in Québec on December 31, 2006, and one of the following conditions is met:

This tax credit is equal to 30% of the adoption expenses giving entitlement to a tax credit. The maximum credit is $6,000 per child."

Adoption expenses giving entitlement to a tax credit are expenses paid by you or your spouse after the opening of the adoption file by the Minister of Health and Social Services or a certified agency. However, these expenses must be reasonable and must not have been claimed in your or your spouse's income tax return, for the year in question or a previous year, as a tax credit respecting medical expenses. As well, neither you nor your spouse may claim a tax credit regarding expenses for which you were reimbursed or are entitled to a reimbursement, unless the amount of the reimbursement was included in your income or that of your spouse and cannot be deducted elsewhere.

Attach this form to your income tax return, and be sure to enclose a copy of the adoption order lor, where the order was not remitted to you, the letter from the Ministère de la Justice attesting that an adoption order was handed down), the legal recognition in Québec of an adoption order handed down outside Québec, or the certificate attesting to the registration of the adoption. If you adopted more than bne child, you must complete a form respecting each child. Furthermore, if the other adoptive parent is also claiming a tax credit, the other parent must complete a separate copy of form TP-1029.8.63 and enclose it with his or her return.

Details of the applicable rules are given in the adjacent table. The last line of the first paragraph means that, of course, you can't ask for a tax credit if you have been reimbursed by a third party. There was such a case where parents had received money from their church so some of their adoption expenses where already paid for.

Note that you may have asked for a tax credit for medical expenses in a previous year but these expenses must be excluded in the TP-1029 form. Note also that you can split the tax credit between the two parents but the maximum stays the same.

The type of expenses you may include in the calculation of the tax credit are the following (as written in the form):

"Judicial or extrajudicial expenses incurred to obtain an adoption order in Québec, legal recognition in Québec of an adoption order handed down outside Québec, or a certificate anesting to the registration of the adoption of a child domiciled in the People's Republic of China.
Travel expenses of the child and of an escort, if the adoptive parents did not accompany the child.
Travel expenses of the child; travel and living expenses of the adoptive parents, if the adoptive parents were required to go to a foreign country to bring back the child.
Fees for translating documents related to the adoption.
Fees charged by an agency certified by the Minister of Health and Social Services
Fees charged by the foreign institution that took care of the child
Expenses related to the psychosocial assessment of the adoptive parents."

You may download the TP-1029.8.63 form.

The federal

" Budget 2005 also proposes to introduce a new tax credit to recognize specified adoption expenses (including adoption agency and legal fees), up to a maximum of $10,000."

Details found in: " Explanatory Notes to Legislative Proposals Relating to Certain Income Tax Measures Announced in Budget 2005".

"New section 118.01 of the Act provides a tax credit in respect of eligible adoption expenses incurred in respect of the completed adoption of an eligible child, up to a maximum of $10,000 (to the extent that the adoptive parent has not been reimbursed in respect of eligible expenses and is not entitled to be so reimbursed). Individuals may include eligible adoption expenses incurred during the adoption period, generally defined as the period that begins at the earlier of the time the child’s adoption file is opened with the provincial or territorial ministry responsible for adoption or a licensed adoption agency, and the time, if any, that an application related to an adoption is made to a Canadian court and that ends at the later of the time the adoption is finalized and the time the adopted child begins to live with the adoptive parent. To be eligible for the credit, a parent must submit proof of an adoption in the form of a Canadian or foreign adoption order, or otherwise demonstrate that all of the legal requirements of the jurisdiction in which the parent resides have been met in completing the adoption. Individuals must claim the credit in the taxation year in which the adoption period ends. New section 118.01 applies to the 2005 and subsequent taxation years."

“Adoption period” in respect of an eligible child is defined as the period that begins at the earlier of the time that the adoption file is opened with a provincial or territorial ministry responsible for adoption (or with a licensed adoption agency) and the time, if any, that an application related to the adoption is made to a Canadian court and that ends at the later of the time that an adoption order is issued by, or recognized by a government in
Canada and the time that the child first begins to permanently reside with the adoptive parent.

“Eligible child” means a child who has not attained the age of 18 years at the time the adoption order is issued
by, or recognized by a government in Canada.

Calculation of Adoption Expense Tax Credit

New subsection 118.01(2) of the Act provides for the calculation of the adoption expense tax credit in respect of the adoption of an eligible child. The credit is determined by applying the appropriate percentage (16% in 2005) to the lesser of $10,000 and the amount obtained when reimbursements and other forms of assistance (other than an amount that is included in computing the individual’s income and that is not deductible in computing the individual’s taxable income) that any individual is or was entitled to receive in respect of an eligible adoption expense is subtracted from the amount of eligible adoption expenses incurred in respect of an eligible child.

Maximum Amount of Credit

New subsection 118.01(3) of the Act provides that, where more than one individual is entitled the adoption expense tax credit in respect of the same eligible child, the total amounts claimed by those individuals can not exceed the maximum amount that would be allowed if only one individual were claiming the adoption expense tax credit in respect of that child.

The Process: Adoption and tax return

The provincial tax credit

The federal

The Process:
Adoption and tax return