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.