Kevin Montgomery R.G.D.

Increased Benefits To Families? Not So Fast

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Updated December 22, 2014:

 

Thanks to a commenter named Liz, more detail was brought to my attention. The concerns I express in this post seem to be for naught. Check out this page for a better explanation of the Child Tax Credit.

 


 

On October 30 2014, Prime Minister Stephen Harper announced measures to help make life more affordable for Canadian families.

  • The Universal Child Care Benefit (UCCB) for children under age six will increase. As of January 1, 2015, parents will receive a benefit of $160 per month for each child under the age of six – up from $100 per month. In a year, parents will receive up to $1,920 per child.
  • The UCCB will expand to children aged six through 17. As of January 1, 2015, under the expanded UCCB, parents will receive a benefit of $60 per month for children aged six through 17. In a year, parents will receive up to $720 per child.
  • The Child Care Expense Deduction dollar limits will increase by $1,000, effective for the 2015 tax year. The maximum amounts that can be claimed will increase to $8,000 from $7,000 for children under age seven, to $5,000 from $4,000 for children aged seven through 16, and to $11,000 from $10,000 for children who are eligible for the Disability Tax Credit.

 

I don’t have experience with raising children who are eligible for the Disability Tax Credit. I won’t be evaluating that credit, but I welcome comments from anyone who can offer it.

 

All this seems like good news, right? Not so fast. After doing some number crunching, this does nothing to help struggling families. Why? Because “The enhanced UCCB will replace the existing Child Tax Credit”. This changes everything.

 

Spoiler: This plan causes a net loss for the poor, and benefits the well-off. There is further loss for more than one child. See examples below, or read on.

For Reference

UCCB Announcement
http://pm.gc.ca/eng/news/2014/10/30/pm-announces-tax-cuts-increased-benefits-families

 

Canada Child Tax Benefit Information
http://www.children.gov.on.ca/htdocs/English/topics/financialhelp/ocb/howmuch.aspx

 

Let’s look at some numbers. I’m going to give examples for families of 1–4 kids, from at-risk to below-average income levels.

The Situation

The current UCCB pays $100 per child under the age of 6, and is taxable. The CCTB is not taxable, and uses a progressive payout, per the example:

 

Ontario Child Benefit Monthly Payment Estimates as of July 2014*
Family Net Income
Number of Children $20,000 $25,000 $30,000
1 $109.16 $75.83 $42.50
2 $218.33 $185.00 $151.66
3 $327.50 $294.16 $260.83
4 $436.66 $403.33 $370.00

 

Let’s look at a family earning just above the poverty line at $25,000, with a child under 6.

 

+ UCCB: $100 (- tax payable)
+ CCTB: $75.83
= Total: $175.83 (- tax payable)

 

Replacing the CCTB with the UCCB Proposal, the credit from the government is:

 

+ UCCB: $160 (- tax payable)
= Total: $160 (- tax payable)

 

Net loss: $15.83 + tax payable.

 

What about for a child over 6?

 

+ UCCB: $0
+ CCTB: $75.83
= Total: $75.83

 

Again, replacing the CCTB with the UCCB Proposal, the credit from the government is:

 

+ UCCB: $60 (- tax payable)
= Total: $60 (- tax payable)

 

Still a net loss: $15.83 + tax payable.

 

A family hovering above an at-risk income experiences a net loss from this change to their tax benefits. The problem gets worse with more children. Let’s look at two kids under 6.

 

+ UCCB: $200 (- tax payable)
+ CCTB: $185.00
= Total: $385 (- tax payable)

 

Under the new UCCB Proposal, the credit from the government is:

 

+ UCCB: $320 (- tax payable)
= Total: $320 (- tax payable)

 

Net loss: $65 + tax payable.

 

And for two children 0ver 6.

 

+ UCCB: $0
+ CCTB: $185
= Total: $185

 

Under the new UCCB Proposal, the credit from the government is:

 

+ UCCB: $120 (- tax payable)
= Total: $120 (- tax payable)

 

Still a net loss: $65 + tax payable.

 

The net loss experienced by low-income families goes up with each child!

Examples

Here are tables comparing before and after, based on the examples provided earlier.

 

Current Payouts Under CCTB + UCCB Plans for Children Under 6
Family Net Income
Number of Children $20,000 $25,000 $30,000
1 $109.16 + $100 = $209.16 $75.83 + $100 = $175.83 $42.50 + $100 = $142.50
2 $218.33 + $200 = $418.33 $185.00 + $200 = $385.00 $151.66 + $200 = $351.66
3 $327.50 + $300 = $627.50 $294.16 + $300 = $594.16 $260.83 + $300 = $560.83
4 $436.66 + $400 = $836.66 $403.33 + $400 = $803.33 $370.00 + $400 = $770.00

 

Current Payouts Under CCTB + UCCB Plans for Children Over 6, Under 18
Family Net Income
Number of Children $20,000 $25,000 $30,000
1 $109.16 $75.83 $42.50
2 $218.33 $185.00 $151.66
3 $327.50 $294.16 $260.83
4 $436.66 $403.33 $370.00

 

Number of Children Proposed Payout Under New UCCB Plan for Children Under 6
1 $160
2 $320
3 $480
4 $640

 

Number of Children Proposed Payout Under New UCCB Plan for Children Over 6, Under 18
1 $60
2 $120
3 $180
4 $240

What about the Child Care Expense Deduction?

I’m pessimistic. Child care costs have increased for years in Ontario. Without a cap, like the one proposed by the NDP, there is no reason to believe they won’t continue to increase. This will quickly swallow up any increase to the Child Care Expense Deduction.

4 response(s) to Increased Benefits To Families? Not So Fast

  1. Liz says:

    Child tax credit is something u claim on your taxes not a monthly benefit then u switched to talk about the child tax benifit! So correct your article before u get people all upset

    • Kevin says:

      I don’t have a problem with upsetting people. At least they’re engaged in the conversation. 🙂 Interestingly, I found this page that appears to have been updated on the same day I published this post. http://www.taxtips.ca/filing/childamounttaxcredit.htm It seems to explain a bit more clearly what’s being proposed, and coincides with what you’ve said. I actually hope I’ve missed something, and that this is a good news story for lower-income families. I’ll investigate further and post an update. Thanks for commenting!

  2. Mike says:

    This is all wrong. The CCTB is a means-tested benefit (i.e. for low and middle income families), is not taxable, and is not related to the UCCB. The CCTB is a mix of federal and provincial benefits that varies across Canada and was in NO WAY changed as a result of the UCCB changes. What did change was that the Child Tax CREDIT was eliminated. Please get your facts straight.

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