5 reasons you won't get children's fitness and arts tax credits for 2017

Stop fretting about misplacing those receipts.

The last year Canadians can claim federal tax writeoffs for their children's fitness and arts activities is 2016, based on changes announced a year ago in Finance Minister Bill Morneau's first budget.

The Liberals said they wanted to make the tax system simpler and "better target" support for families with theirnew Canada Child Benefit, which gives more moneyto low-income families than to richer ones.

But Morneau's department recently explained additional rationalefor the cuts.

• 2017 federal budget: What your tax breaks cost on the finance minister's books

The 2017 report on federal tax expenditures concludes the children's fitness tax credit (CFTC) and children's arts tax credit (CATC) had "significant shortcomings."

Turns out this Liberal move was about more than just dismantling a high-profile Conservative tax break.

An annex describeshow ineffective and inefficient the tax credits turned out to be something policy analysts had argued, but the previous government never revealed.

• 2015Auditor general report: Child fitness tax credit report kept hidden

Aside from making the tax code simpler, here are four other ways the Liberals can defend phasing these out:

Manyfamilies never claimed them

Cutting the credits drew criticism: Certain families and some activity providers felt they helped.

Until 2013, parents could claim up to $500 of expenditures for either credit and deduct15 per cent from their taxes($75, if they had receipts for the full amounts.) At first, less thana third of families claimed anything.

In 2014, the fitness credit was beefed up: the amount doubled to $1,000 (thenworth a $150 deduction) and the credit became refundable, so low-income families who paid little or no tax could get money back.

But even that year, the majority of families with children took a pass: only 43 per cent claimed one or both credits, accounting for less than half of all Canadian kids (47 per cent.)

The fitness credit was more popular (41 per cent uptake in 2014) than the arts credit (15 per cent uptake.)

Among families with sufficient annual income to be paying taxes (generally those reportingover $40,000), the percentage of families claimingeither credit never rose over55 per cent.

Helped rich families more

The tax credits were supposed tomakeactivities more affordable.

But ananalysis of the 2014 statistics found creditsweren't as likely to be claimed by low-income families as those in higher income brackets.

Provinces includingOntario, Quebec and Saskatchewan offered additional refundable fitness and arts credits. But even where these added incentives were offered,familieswithannual household incomes under $40,000 were significantly less likely to take advantage.

When the actual tax savings were analyzed, the credits begin to look more likea windfall for rich familieswho could likelyafford the activities, regardless than something that helped pay for whatlower-income parentscouldn't otherwise afford.

Too small to make a difference

Is $75 or $150, possibly received more than one year after the fact, enough incentive to sign up for pricey activitiesyour child wouldn't otherwise enjoy?

The tax system is a slow way to provide discounts. Credits aren't available before payment for activities are required.

Thereport suggested several other reasonsthe credits weren't more popular:

• Until the fitness creditbecame refundable in the final years of itsexistence (the arts credit never was), why would thelowest-income families claimthem? They didn't have tax owing anyway.
• The claimable amounts were capped: parents who could afford to spendmore than the maximum did not benefit indefinitely.
• Having to keep receiptsand issue themadded an administrative burden to families and organizations. The cost of additional paperwork might have contributed to rising activity costs, offsetting the intended savings.
• There's more to family decisions than just cost: What do kids like? What are they good at? What's convenient?

Kids weren't any more active

There's little proof the fitness credit got significantly more kids off the couch. It may havejust rewarded the parents ofthose already active.

Did the tax credit help some families swap low or no-cost activities for more expensive ones? Maybe.

Were some families too busy to sign up for more, regardless of the credit? Also possible.

The report mentionsone 2010 survey in which only four per cent ofparents saidthe fitness credit increased their children's participation.

The takeaway? A more efficient way for taxpayers to help all kids might be providingfunding for free or low-cost recreational activities, rather than subsidizingpricier activitiesfor only some families.