There are a number of omissions that can occur in the rush at the end of tax season. One of them is missing the reporting of income benefits received by families in 2016. It’s important to remember that for the first six months of 2016 the UCCB (Universal Child Care Benefits) were received and they are taxable. That’s a double whammy for many upper-middle-income families who also lost the family income-splitting provisions. There are now no child tax supports at all for them.
Here’s what you need to know: Until June 30, 2017, the federal government paid to all families $160 per month for each child under the age of 6, and $60 per month for children aged 6 to 17. There was no income-testing in order to receive the benefits.
The UCCB was discontinued and replaced by the new Canada Child Benefit (CCB) on July 1, 2016, and this new tax-free amount was based on family net income of the 2015 tax year. Likewise, for the benefit year that begins on July 1, 2017, the CCB will be based on net family income that is reported on the 2016 tax return.
Therefore, it’s most important to file that tax return before May 1, and claim all the deductions the taxpayer is otherwise entitled to in order to reduce family net income—things, like child care expenses, investment carrying charges or moving expenses. And, if the taxpayer forgot to report the UCCB on a previously filed tax return, or missed any of these important deductions that determine the size of the CCB for the next benefit year, an adjustment should be made to those tax returns from previous years.
Families particularly affected by these recent tax changes are those with one stay-at-home parent and a high-income working parent. These parents now have no supports for raising minor children starting in 2017, when even the Children’s Arts and Fitness Amounts have been cancelled. In these cases, an RRSP investment strategy can be very helpful, as this deduction reduces net income. Depending on size of family net income, the RRSP deduction may initiate a partial claim under the CCB next year.
Alternatively, taxpayers most affected by these changes can consider saving for their child’s education within an RESP (Registered Education Savings Plan) to take advantage of another form of government support: the Canada Education Savings Grant. It’s 20% of the contribution made to the RESP, up to a maximum contribution of $2500 per year. That sweetener is not income-tested.
Planning to reduce family net income may increase your monthly cash flow from refundable tax credits like the CCB. Check this out with a DFA – Tax Services Specialist as tax season wraps up, especially if you find your tax refund is significantly lower than last year’s, or if you are unsure whether you could qualify for more.