Putting the Canada Child Benefit to the test

Those with household income less than $140,000 win under new plan

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Despite all the press and expert analysis, more than a few Canadians had questions regarding how the Canada Child Benefit will work.

Using our Canada Child Benefit calculator, we examine how this new non-taxable benefit really works and offer some insight into the questions you had about the CCB.

Putting the Canada Child Benefit to the test

The Liberals explained their decision to scrap CCTB and UCCB and replace it with the Canada Child Benefit by stating that: “Canada’s existing child benefit system is complicated, consisting of a tax-free, income-tested Canada Child Tax Benefit with two components (the base benefit and the National Child Benefit supplement) and a taxable Universal Child Care Benefit received by all families, regardless of income. It is a system that is both inadequate (it does not provide families with the support they need) and not sufficiently targeted to those who need it most (families with very high incomes receive benefits).”

How the budget will affect families »

Starting in July 2016, families will receive the Canada Child Benefit (CCB)—a refundable credit based on family net income. According to Budget 2016, the new CCB will provide a maximum benefit of $6,400 per child under the age of six and $5,400 per child aged six to 17. While the Liberals anticipate this new benefit will help more than nine million Canadians, they expect that most Canadian families will see an average increase in child benefits of almost $2,300 each year.

The winners and losers of the Canada Child Benefit »

To appreciate whether or not families will really benefit from the CCB, we decided to take your questions and answer them using our Canada Child Benefit calculator. Here’s what we found:

Scenario 1: What benefit can a single parent who earns $10,000 per year and has two children under the age of 6, expect to receive? — Jessie, via moneysense.ca

If you’re a low-income parent, you will definitely benefit from the Liberal’s new CCB plan. Based on Jessie’s scenario, this parent would actually receive $1,630 more per year under the CCB for a maximum of $12,800 per year, compared to just $11,170 that he or she would’ve received under the former CCTB and UCCB plan.

So, for this low-income parent, the new plan puts an extra $1,066 per month in their pocketbook (as opposed to the old plan which only gave them ($930 extra per month).

Scenario 2: What benefit can a single parent, who earns $30,000 per year, with two children under the age of six, expect to receive? — Jessie, via moneysense.ca

Now, here’s where it gets interesting. Under the old child tax benefits, a single-parent of two kids under age six, earning an annual income of $30,000, would only get $10,334 or $861 per month. But under the Liberal’s new CCB, this parent would receive $12,800 each year—an increase of $205 per month when compared to the old plans.

Scenario 3: What benefit can a family with a combined annual income of $70,000, and one 13-year-old child, expect to receive? — Mike, via moneysense.ca

A family that earns a net household income of $70,000 and is raising a teen can expect an extra $102 per month under the new CCB, for a total annual benefit of $2,790.

Scenario 4: What can a single parent, with a $30,000 annual income and three children (aged 6, 9 and 13), expect to receive from the new Canada Child Benefit? One child qualifies for the Disability Tax Credit.  — Natasha, via moneysense.ca

In this scenario, the parent can expect 1,350 per month from the Liberal’s new CCB plan, for a total non-taxable benefit of $16,200 each year. Under the old plan, this parent would’ve received $11,816—or $4,384 less each year.

Also, because there is one child that qualifies for the Disability Tax Credit, this parent will continue to receive the Child Disability Benefit with the addition of up to $2,730, per year, for each eligible child.

Scenario 5: Family that earns $80,000 and raising two children, both under the age of 6.

Under this new plan, the more you earn the less you’ll get in CCB benefits—but that does not mean that you’ll have less in your pocket.

For instance, if your family’s net annual income was $80,000, you would’ve received $5,431 per year in CCTB and UCCB benefits. Plus, you would’ve had to pay tax on the UCCB portion of those benefits.

Under the new plan, your family will receive $7,220 each year in non-taxable benefits—almost $1,800 more than the old plan.

(If your children are older than six and younger than 17, your CCB benefits drop to $5,220 per year, but that’s still $2,189 more than what you would’ve received under the old plan.)

Scenario 6: Family that earns $120,000 and raising two children, both under the age of 6.

If your combined family income jumps into the six figures, you’ll continue to see a clawback of the CCB benefits. Under this scenario, the family would receive $411 per month in CCB payments versus the $320 per month they would’ve received under the old plan.

Scenario 7: Single earner with $300,000 in annual income raising two kids between the ages of 6 and 17. — James, via moneysense.ca

Sorry James. You won’t get a red cent under the new Liberal plan. While the old plan would’ve paid you $1,440 to help defray the costs of a raising three children, under the new CCB you won’t be eligible to receive any benefits. Keep in mind, though, that even under the old plan, a portion of that money was taxable.

For anyone that would like to run their own calculations, you can use our Canada Child Benefit calculator. The calculator lets you input your province of residence, each parent’s gross annual income as well as the number of children under age six and between the ages of six and 17. In case you wondered, our calculator takes into consideration both provincial and federal marginal tax rates.

At incomes of $140,000 per year, families start to break even

According to our CCB calculator, a family will break even with the CCB as soon as one spouse earns between $140,000 and $150,000 each year. In this earnings bracket, the family would receive roughly the same amount from the CCB as they would have under the old CCTB and UCCB plans.

This changes again if the annual income is split between two parents. For instance, if each spouse in this family were to earn $70,000 each, the CCB would still provide almost $1,200 more each year in non-taxable benefits (assuming two kids under the age of six). In fact, a dual-income family doesn’t actually break-even on the CCB until each spouse is earning about $80,000 in taxable income each year.

Your questions about the CCB answered

Q1: Will the new child care benefit be paid out retroactively from January 1, 2016? — Mordechai, via moneysense.ca

No. The Canada Child Benefit (CCB) will replace the former Canada Child Tax Benefit (CCTB) and the Universal Childcare Benefit (UCB) starting in July 2016.

Q2: How will the benefit be split if parents are divorced and share custody of the children? — Christine, via Facebook 

Great question, Christine. Typically, tax repercussions of a separation or divorce are dealt with in the separation agreement. This agreement will include support to be paid, who pays what for child care expenses, and what each parent can claim when it comes to tax credits and deductions relating to their child(ren).

While some tax deductions and credits can be shared between you and your former spouse, others cannot.

As a rule of thumb, only one parent may claim the federal and provincial tax credits for an eligible dependant and for children born after 1995 (although, this tax credit may have been eliminated after 2014). It’s important to address who will get to claim these benefits as they can be fairly significant in helping to reduce taxable income. For instance, as a parent you could claim up to $11,327 as a federal tax credit for each child on your 2015 tax return. For more on this see the CRA’s site.

However, there are tax credits that both you and your ex-spouse can share. These include child care expenses and, presumably, the Canada Child Benefit. Under the former Canada Child Tax Benefit (CCTB) and Universal Childcare Benefit (UCB), parents could split the taxable benefits as long as they spent 40% or more time parenting their child(ren). That meant that each parent was entitled to at least 50% of the “baby bonus” money from the government. Moving forward, it appears the CCB will work the same way in shared-parenting arrangements, however, the onus is on the parents to sort out who claims what on their tax

We should point out that our analysis and calculations of the Canada Child Benefit versus the old CCTB/UCB plan do not give a complete picture when it comes to your taxes. Our calculator does not take into consideration the elimination of the Family Tax Cut (which allowed high income couples to save as much as $2,000 in taxes through income splitting), nor does it take into consideration the $225 tax credit ($150 from the Fitness Tax Credit and $75 from the Arts Tax Credit) that was eliminated in Budget 2016.

To truly appreciate all of the tax implications please talk to a tax specialist. Or, if you have questions about the CCB or other aspects of the federal budget, email us. We can be reached at: ask@moneysense.com or through Twitter @MoneySenseMag and on Facebook.

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