The New Canada Child Benefit

Photo Credit: Unsplash free stock photo-1459257831348-f0cdd359235f by user Fabian Blank
Photo Credit: Unsplash free stock photo-1459257831348-f0cdd359235f by user Fabian Blank

The new Canada Child Benefit, operational as of July 20, is weighted to provide greatest benefit to low-income families, while high-income families will no longer receive payments under the scheme.

Previously, families could receive the Canada Child Tax Benefit  (CCTB), tied to income, and the Universal Child Care Benefit (UCCB).  The UCCB paid $1,920 per year for children under six and $720 per year for children aged 5-17, regardless of family income, with the intent of supporting childcare costs for families.

The new Canada Child Benefit (CCB) combines the CCTB and the UCCB into one payment, all income-dependent, and not subject to taxation.  As well as replacing the UCCB and CCTB, the CCB also replaces the National Child Benefit (an additional income-tested family benefit); the Family Tax Cut for families with children under 18, that significantly lowered the tax payable, up to $2,000, for families when one parent or guardian made significantly more than the other; and the Children Fitness Tax Credit (CFTC) and Children’s Arts Tax Credit (CATC), worth up to $150 and $75 per child, respectively, (the CFTC and CATC are being cut in half in 2016 and phased out entirely in 2017).

Maximum benefit under the new CCB scheme will be $6,400 per child per year, or $5,400 for children between 6 – 17 years old, for families with net income below $30,000.  Families with higher incomes receive progressively less, with benefit payments phasing out entirely for families with net income over $200,000.  The number and age of children will impact the net benefit to families, as will all the components of a family’s adjusted net income, based on line 236 of the federal tax form.

A July 11 CBC posting by Janyce McGregor notes, “Families will have to do all the math – the taxes no longer paid, but also the credits no longer claimed – before drawing conclusions about whether they’re better off.”  Included in these calculations are the federal tax brackets, which changed in January 2016, dropping the middle-income rate from 22% to 20.5% and instigating a new 33% tax rate for incomes above $200,000.  Deductions that lower the amount on line 236 of the tax return will impact the amount families receive for their children (e.g. maximizing RRSP contributions and claiming costs like child care, moving expenses or union dues).  Keeping receipts is an important part of maximizing these claims for families.

A CBC article by Aaron Saltzman, on July 20, points out that “the extra money and the fact that it’s tax-free could have a stimulative effect on the economy, at least initially”, quoting Stephen Poloz, governor of the Bank of Canada, who stated, “It’s theirs to spend.  Of course, when they spend it, it has secondary effects.”

The Saltzman article notes that concerns have been expressed about the scale of the program, with an expected cost of $22.4 billion over 5 years, while the government is running a deficit.

The program is designed to have particular impact for the working poor.  The federal government’s hopes are that it will push nearly 300,000 Canadian children above the poverty line and reduce the poverty rate for children in Canada from 11.2% to 6.7%.

In another CBC article on July 14, Janyce McGregor notes that “the federal government could have made clawbacks impossible by adding a condition to the Canada social transfer, the money the federal government transfers to provinces to support education and social assistance programs.  It chose not to.  The budget implementation act left a loophole, similar to one in place with the former Canada child tax benefit, that gave provinces leeway… [The] federal government …has been clear to provinces about what it wants to happen, but also has been quite clear that the provinces will make the decision and it will not use the power it has.”

McGregor also points out that, as the net income from federal tax returns is used to calculate the benefit, if low-income households don’t file tax returns and register, they won’t receive the help; this has particular significance for First Nations families. There are also implications for families with complex custody arrangements.