The federal government announced last week that the Canada Child Benefit (CCB) will be increasing for the second consecutive year as of this July. Unfortunately, many families are subject to a clawback of the generous benefit when their family net income rises. Worse, many Canadians don’t realize how critical an RRSP contribution can be in generating more of this lucrative tax-free benefit. Tax and financial advisors can add high value by helping to connecting those dots.
How much more should eligible taxpayers expect to get from the CCB? Beginning this July, the maximum annual benefit will increase to $6,639 ($553.24 monthly) per child under the age of 6 and to $5,602 ($466.84 monthly) per child aged 6 through 17. It’s an increase that equates to an extra annual amount of $143 for each child under the age of six, and $121 per child between the ages of 6 and 17.
Benefit amounts are based on 2018 adjusted family net income, and eligibility requires that families submit their tax returns annually. Families with an adjusted family net income of $31,120 or less are eligible to receive the full benefit amount. Families with incomes above this threshold will have their benefit clawed back as follows:
Reduction of these amounts starts when the adjusted family net income (AFNI) is over $31,120. That’s where the RRSP comes in. The object is to contribute funds to the plan based on the available unused RRSP contribution room, and create a deduction to reduce AFNI, so that clawbacks are minimized.
The clawback or reduction in the CCB is calculated as follows:
Clawback calculation chart for 2019:
Family Net Income
Number of Children
$31,120 to $67,426
$2,541 + 3.2%
$4,901 + 5.7%
$6,898 + 8.0%
$8,350 + 9.5%
Check out the CCB payment schedule below. The next benefit will be received this week. The newly enhanced benefits start July 19.
If you are receiving the Canada Child Benefit and your family status changes: you are separated, divorced, or enter in a shared custody arrangement, then this must be reported to the government using the “apply for child benefits” option in My Account, by calling 1-800-387-1193, or by filling out form RC66, Canada Child Benefits Application. This could result in an increased benefit.
The cost of the benefit has increased substantially since 2016 when it replaced the Child Tax Benefit. The numbers below are based on Finance Canada’s Report on Federal Tax Expenditures - Concepts, Estimates and Evaluations 2019 .
Tax and financial advisors can provide high value advice by calculating the effect an RRSP contribution will have, not just in reducing taxes for the family, but also for the purposes of maximizing the CCB. The next RRSP contribution deadline is February 29, 2020, so there is plenty of time (over 9 months) to sock away savings to earn more benefits in July 2020.
Additional educational resources: Help families meet tax filing requirements to access important income sources like the Canada Child Benefit as a DFA – Tax Services Specialist™.
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