The new Canada Child Benefit CCB) makes the first of its monthly payments starting July 20th. This benefit replaces the previous Canada Child Tax Benefit (CCTB) and the Universal Child Care Benefit (UCCB).
There are two major differences.
First, the benefit is completely non-taxable. No reduction of your expected refund and no surprising amount owing when your taxes are filed in the future. Keep in mind the first six months of 2016, families did still receive the taxable UCCB of $60 per month for children six to age 17 and $160 for children under age six.
The second major change is the benefit is now entirely based on family net income. The full entitlement is $6,400 ($533/month) per child under age six and $5,400 ($450/month) per child for those ages six to 17. There is an additional amount for children with disabilities, up to $2,730 ($227.50/month).
The amounts start to be reduced when family income reaches $30,000. The more children you have, the larger the percentage of reduction.
Net family incomes from $30,000 to $65,000, the percentage reduced is 7% if you have one child, 13.5% for two children, 19.0% for three children, and 23% for families with four or more children. Once combined family incomes exceed $65,000, the percentages become smaller (3.2%, 5.7%, 8.0% and 9.5%).
Letters from Canada Revenue Agency regarding the Canada Child Benefit will be sent out at end of June or early July explaining your own calculated monthly benefit.
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 beyond. You would defer taxes and increase your CCB starting a year from now.
RRSP season (usually January and February each year) just got a bit more interesting. Let me explain.
Say your family�s net income is $65,000. If you buy $1,000 of RRSPs by March 1 2017, you not only save (defer) 33.25% income taxes, you also save an additional 7%, or 13.5% or 19% or up to another 23% with the increased CCB depending on how many children you have.
Yes, you could save up to 56% on your taxes/CCB with an RRSP purchase depending on your family income and how many children you have!
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.
I expect I will see some families in January / February 2017 to do some tax planning “what ifs”: estimate the tax savings of 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! I’ll be sure to remind my income tax clients with children prior to the RRSP deadline of March 1 2017.
Anni Markmann Personal Income Tax Professional and Certified Financial Planner; living, working, and volunteering in our community. Contact her at 204.422.6631 or 36 Dawson Road in Ste Anne (near Co-op) or Info@SteAnneTaxService.ca.