Lower Your Family Income and Increase Benefits

First, Happy New Year to you and your family; I hope 2023 is a better year for everyone; healthy and more affordable; and I am optimistic that the world finds peace in 2023.

There are two family benefits provided by the federal government that are income tested: Canada Child Benefit and the new Canada Dental Benefit.

Both benefits are increased for those with lower and moderate incomes.

Canada Child Benefit

The Canada Child Benefit (CCB) has been around since 2016 and most families are quite familiar with the monthly benefit.

The benefit is maximized for families with incomes under 33,000; the CCB is reduced as income rises to about 71,000; and reduces even more with each dollar of income over 71,000.

I have written articles in the past to encourage families to buy RRSPs to reduce family income to not only save on taxes but to also increase the monthly CCB.

As an example, a family with combined income in the 50,000 to 70,000 range and if the higher income spouse earns more than 50,000, the RRSP contribution savings can be over 55% (combined tax savings and increased CCB) depending on how many children you have.

And now with the new Canada Dental Benefit, there is even more reason to do some tax planning with RRSP contributions.

Canada Dental Benefit

During the past few months, we have provided information about the new Canada Child Benefit. See the previous articles at dawsontrail.ca or steannetaxservice.ca

The new Dental Benefit or CDB is for families with combined income less than 90,000 that do not have a dental plan. The benefit is even higher when incomes are under 70,000. The dental benefit is for children born on or after December 2, 2010.

How much can you receive?

Combined family income under 70,000 are eligible for the full benefit of $650 per child; family income 70,000 – 80,000 $390 per child; family income 80,000 – 90,000 $260 per child; family income over 90,000 do not qualify.

There are two claim periods: The first benefit period is for children under 12 years old as of December 1 2022 who receive dental care between October 1 2022 and June 30 2023. This benefit period is based on 2021 income. Too late to make changes to reduce your 2021 income.

The second benefit period is for dental care between July 1 2023 and June 30 2024 and is based on 2022 family income. You CAN do something to reduce your 2022 family income.

Reduce Income with RRSPs

If your family income for 2022 is just over 70,000, it may be a very good idea to get your income under 70,000 to increase your CCB monthly starting July 2023 and also to increase the dental benefit for each child from 390 per child to 650 per child!

Or if your income is just over 90,000, you may want to get it reduced so you qualify for the new Canada Dental Benefit!

You can reduce your family income if you purchase RRSPs before Mar 1 2023. RRSP contributions made during the first 60 days of 2023 can be deducted on your 2022 taxes.

Our existing clients may benefit from our tax planning and can call us to arrange a “what if” and estimate your taxable income for 2022 to find out how close you are to some of these thresholds.

We can use your last pay statement of 2022 to estimate your income. We will also want to see the 2021 end of year pay statement and compare to your 2021 T4. We want to make sure there are no surprises of taxable benefits that are not reflected on your pay statement that may only appear on your T4.

An example of a taxable benefit is life insurance paid by the employer. A vehicle allowance may also be added to your T4 and it may or may not be shown on your last pay statement. Or if your employer matches your RRSP contributions, that may also be considered a taxable benefit.

Normally RRSPs work best for those taxpayers that are in higher tax brackets. But with the new Canada Dental Benefit, RRSPs are even more important for families with low to moderate incomes!

Anni Markmann is a Personal Income Tax Professional and Certified Financial Planner; living, working, and volunteering in our community. Contact Ste Anne Tax Service at 204.422.6631 (phone or text!) or 36 Dawson Road in Ste Anne (near Co-op) or info@sataxes.ca

Combined family income under $70,000 eligible for the full benefit of $650 per child; family income $70,000 – 80,000 $390 per child; family income $80,000 – 90,000 $260 per child; family income over $90,000 do not qualify

Children under 18? RRSPs!

First I would like to wish everyone a Healthy and Happy New Year! Hope 2017 is the best year yet for you and your family!

If you have children under age 18, you really should consider purchasing RRSPs (Registered Retirement Savings Plans) before the March 1 2017 deadline. If you don’t have children under 18, give this article to someone who does!

What makes RRSP contributions different this year compared to previous years? The new Canada Child Benefit (CCB) that changed last July 2016 makes things more interesting and puts more money in your pocket!

First a quick review of RRSPs. Most people understand how they work: you make a contribution to your RRSP (or a spousal RRSP) and you can deduct it from your other income on your tax return to reduce your taxable income, saving you tax dollars now. Actually you are deferring the taxes until the time you take them out, but we will focus on the immediate tax savings for now.

For the 2016 tax year, you have until March 1 2017 to make an RRSP contribution and use the deduction on your 2016 income tax return.

Depending on your tax bracket, the savings vary: if your taxable income is $45,000 or less, your tax savings are about 26-28%; if your income is $45,000 to $67,000, the tax savings are 33% and higher incomes save more in taxes.

What makes things different now are for those of you that have children under age 18. The lower your combined taxable income, the more you get from the monthly Canada Child Benefit! Even more money in your pocket!

Let’s look at a couple of examples.

Let’s say your combined family income is $45 to 65,000 and you have two children. If you are the higher income spouse and your income is say $30-45,000, if you buy $1,000 RRSP, your tax savings are 28% or $280 AND you also increase your Canada Child Benefit by 13.50% for the year: you will get $11 more per month starting July 2017, that’s another $135 for 12 months; the RRSP tax savings increased from 28% to 41%. Now we are talking some serious savings. So you still have the $1,000 in the RRSP for the future and you get back $410 from the government in combined savings.If you have three children, the savings increase to 47%; if you have four or more children, the savings increase to over 50%! You just got back over half of your $1,000 RRSP!

Who potentially saves the most? Those families with combined income of $45 to 65,000 with one spouse earning $45-65,000 and you have four or more children. Your savings could be over 56%!

From a tax planning point of view it may make sense for families to consider using RRSPs to reduce their taxable income for 2016 and every year. You would defer taxes and increase your CCB starting in July 2017.

And the reverse is true too. If you have additional income (interest income for example) it’s like being taxed at a much higher rate since your Canada Child Benefit may be reduced too. Time to move any taxable interest income accounts to the Tax Free Savings Account! And maybe time to review any other income you are receiving and is there anything you can do about it (defer or shelter it).

I encourage families in January and February 2017 to do some tax planning “what ifs” and estimate the total savings from RRSP purchases. It’s more than just income taxes saved from now on. It may even be worth considering an RRSP loan to help save for your retirement and get maximum income tax and CCB savings now!

If you want some help, call or email me or stop by my office and I can provide an estimate of your overall savings. I will need your combined family net income (estimate it for 2016 by looking at year-end pay statements) and what each of your incomes are (will need to know the income of the higher income spouse). If we already have your info on file from your 2015 taxes, we can do some quick estimates for you.

If you are a grandparent, maybe this would be a good way to help your children and grandchildren financially, by helping them buy an RRSP now.