Birth and taxes: Practical strategies for new and expecting Canadian parents

Welcoming a child into your family is a life-changing moment—but one that also brings a range of tax and financial considerations that could get overlooked. 

From accessing government benefits and credits to planning income, deductions and cash flow, expecting and new parents should evaluate timely opportunities to optimize their tax position. 

Thinking about tax strategies at this busy time may sound overwhelming, especially for first-time parents, but even a modest amount of initial planning can make a substantial difference. While it’s impossible to prepare for every possible scenario, proactive consultation with appropriate advisors can help taxpayers prepare for potential surprises and maximize financial flexibility for future years. 

Parents should pay close attention to four key planning stages: before the child arrives, the time of birth, shortly after the child is born and the years that follow. Each present distinct tax considerations and opportunities—and breaking these down into chronological stages can help effectively manage your options.

Before birth: Timing-driven tax considerations 

Parents should consider evaluating their overall tax position before the arrival of their child and exploring if there are any planning considerations they can undertake. 

Parental leave and any potential changes in work patterns could affect both the level and timing of household income—which may influence cash flow and tax liability.

Employment insurance (EI) and other income sources 

Many expecting parents plan to take parental leave and, if approved, receive employment insurance (EI) benefits that are included in taxable income. Taxes on EI payments are usually withheld at source based on standard rates. However, such withholdings may not fully reflect an individual’s overall income profile.  

There could be some circumstances where taxpayers have additional sources of income in the same taxation year in which they receive EI—such as investment income or limited part-time earnings. In those cases, the tax withheld on EI may not be sufficient to cover any incremental taxes from other income. 

This could force individuals to fund unexpected tax liabilities at the time of filing their return.   

Taxpayers should also be cognizant that other sources of income could affect the amount of EI benefits available to them.

Understanding how EI eligibility and benefits interact with other sources of income can help expecting parents manage cash flow, anticipate tax obligations and minimize potential surprises at year-end. 

Timing of RRSP contributions 

Registered retirement savings plan (RRSP) contributions are most valuable when made in years where a taxpayer is subject to higher marginal tax rates. 

During parental leave, when one or both parents may fall under a lower tax bracket, there could be uncertainty as to whether continuing RRSP contributions remain tax-efficient. 

The advantage of RRSPs is that contributions and deductions do not need to occur in the same year. If cash flow allows, parents may choose to continue contributing to RRSPs during lower-income periods and defer claiming the deduction to a future year when income is higher. This strategy maintains flexibility and can help optimize long-term tax outcomes. 

At birth: Immediate tax and benefit considerations 

Once your child is born, timely registration for benefits is essential to receive available government support.

Parents should also track eligible medical expenses related to childbirth, as certain costs may qualify for the medical expense tax credit—depending on the circumstances. 

After birth: Ongoing considerations and planning opportunities 

After your child arrives, tax planning should shift from anticipating income changes to longer‑term planning opportunities. 

Eligibility for income-dependent benefits 

Parental leave often leads to a temporary reduction in household income or an imbalance in earnings between parents. These changes could lead to eligibility for multiple income-dependent government benefits and enhance the amount received from each benefit. 

Key benefits include: 

• Canada Child Benefit: The CCB is a tax-free monthly payment that could include the child disability benefit and related provincial and territorial programs. Payments are calculated based on the number and ages of children cared for and the family income. 

• Provincial child benefit: Province-specific child benefits such as the Ontario Child Benefit or the Alberta Child and Family Benefit may also be available to parents.  

• Canada Groceries and Essential Benefit: This 2026 benefit—formerly the GST/HST credit—does not specifically target new parents, but it could provide additional financial support for growing households. 

Benefit amounts are typically reassessed annually based on reported family income—so some parents may receive increased benefits in the year following a period of lower income. Understanding the eligibility rules can help families maximize the support available to them. 

Child-care deductions and other income tax credits 

Child-care expenses are generally deductible when filing a tax return and are typically claimed by the lower-income spouse, subject to limited exceptions. 

Eligible expenses include amounts paid for daycare centres, nursery schools, babysitters and nannies—provided the care is primarily to enable one or multiple parents to work, carry on business or attend school. 

The deduction is limited to the lower amount of actual expenses incurred or a specified annual maximum per child, depending on age and other criteria. Maintaining appropriate documentation like receipts and caregiver details is essential to support this claim. 

Other credits that parents could be eligible to claim include the Canada caregiver credit (CCC) and the disability tax credit (DTC). 

The CCC is a non-refundable tax credit for taxpayers who support family members with a mental or physical infirmity; it can provide meaningful relief where a child has special care needs. 

The DTC is also a non-refundable credit available for parents of children with severe and prolonged impairments as certified by a medical practitioner.  

Reviewing these options early can support effective planning and appropriate record-keeping throughout the year. 

Looking ahead: Setting up for the future

Many parents aim to provide a strong financial foundation for their child by saving for future educational endeavours

and other pursuits by establishing registered and non-registered plans.

Registered education savings plans (RESPs) and government grants 

A registered education savings plan (RESP) is a long-term savings vehicle designed to help fund a child’s post-secondary education. 

Subscribers, usually parents, may contribute to an RESP subject to a lifetime contribution limit of $50,000 per child. Investment income earned within the RESP accumulates on a tax-deferred basis until funds are withdrawn by the child. 

Contributions to RESPs also enable the plan to access government grants, including the Canada education savings grant (CESG) and the Canada learning bond (CLB). These are paid directly into the plan and enhance its overall savings.  

The CESG provides a grant equal to 20 per cent of annual contributions—up to $500 per year—with a lifetime maximum of $7,200 per beneficiary. Eligibility for the CESG is subject to age limits and unused grant room may be carried forward to allow for catch-up contributions in future years, generally up to $1,000 of CESG per year. 

Early contributions allow taxpayers to take advantage of available government grants and maximize compounded growth within the registered plan. Even small initial contributions can be valuable as these could allow unused CESG grant room to be carried forward and caught up in future years. 

Disability tax credit (DTC) and registered disability savings plans (RDSPs) 

DTC eligibility opens the door to a range of disability-related tax benefits, including the ability to contribute to registered disability savings plans (RDSPs). It may also provide additional tax relief through retroactive claims for prior-year DTC credits.  

RDSPs are designed for long-term financial support of individuals with disabilities. While contributions are not tax deductible, withdrawals from RDSPs are not considered income for the beneficiary. 

Eligible individuals may receive government deposits, including Canada disability savings grants—matched by the government up to 300 per cent—and Canada disability savings bonds. Unused grant and bond room can only be carried forward 10 years, so setting up RDSPs early maximizes potential government benefits, even if funding is deferred. 

Trusts and estate planning 

Parents could consider establishing a trust to hold or invest funds on behalf of their minor child. 

A trust is a legal arrangement under which assets are held and managed by a trustee for the benefit of a child; it can be used to provide control and protection over the timing and manner in which funds are distributed.

A trust structure may involve ongoing compliance obligations, such as annual trust filings and reporting. These costs and administrative burden should be weighed against a trust’s intended benefits.

The birth of a child also presents an important opportunity for families to review and update wills and other, broader estate plans. Consulting appropriate advisors can help align trust and estate planning with family objectives and provide clarity for future financial decisions. 

A brief caution about investing for a child 

Some parents may consider investing on behalf of a child outside of registered plans—but it’s imperative that they understand the tax implications of such arrangements. 

Under attribution rules, certain income earned on funds transferred or gifted to minor children by the parents—such as interest and dividends—may be attributed back to the parents, who would be taxed accordingly.  

The tax treatment of investment income varies significantly based on how the assets are structured and held. Families should carefully consider appropriate structures to avoid unexpected tax consequences and consult appropriate advisors before pursuing this option.