See, if it's a credit or a deduction then you don't really get anything back from the government (unless your income is so low you aren't paying any taxes in the first place). The idea behind a credit is you calculate how much you owe to the government in income taxes and then subtract from that the amount of your credit. A deduction reduces the amount of income you make which, in turn, means you pay a smaller amount in taxes.
The government would be forgoing a certain amount in tax revenue that they would otherwise collect from parents who could claim the credit/deduction. The Income Tax Act already provides a bunch of credits and deductions for different child-care-related expenses but the amounts are woefully low and the process for claiming it is needlessly complicated.
OH, and on the topic of income splitting and hiring your wife. The income tax act does its best to prevent that kind of thing. There's nothing stopping you from starting your own business and paying family members income but there are complicated attribution rules and income splitting provisions that prevent illegitimate family businesses. Just because someone you know is doing it, doesn't necessarily make it legitimate. Maybe they just haven't been caught yet. After all, you don't get a speeding ticket every time you drive over the speed limit...
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